3. Falling victim to shortsightedness
Market volatility can make investors lose track of their long-term objectives. In some cases, individuals will be scared off by sudden drops and will panic, sell their shares, and lose money. For example, on March 16 the S&P 500 dropped 11.98%, the third worst day ever in percentage terms.
However, unless you were planning to sell in the near future, this kind of drop should not be as worrisome as it may have seemed back in March. In general, the stock market has performed very well over the long-term. Therefore, most retail investors should not get caught up in short-term losses.
Along the same lines, the market has sustained even longer downturns (see the chart below for 2008), so it is important for investors to keep in mind that they should expect ups and downs in the stock market. The most risk averse individuals may want to consider other types of investments, which offer lower rewards without as much risk, such as government bonds or even high yield savings accounts.
