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- I started buy-and-hold index investing in 2009, but was never tested by a bear market to see if I could withstand a major downturn.
- The COVID-19 pandemic gave me a true test to see if I could avoid selling and stick to my plans.
- So far, I haven't thought about selling my investments and, despite a six-figure portfolio decline in 34 days, my investments have again reached all-time highs because I continued investing.
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I started investing in 2009. After much research, I decided to invest using index funds with a long-term time horizon. I could have tried to beat the market by actively trading, but I didn't have the patience or the time to investigate each investment on an ongoing basis.
I'm not aiming to get rich fast or earn massive returns each year. My goal is to set myself up for retirement, or early retirement if I'm lucky. Index investing should help my investments grow enough to reach this goal thanks to the power of compounding returns. The key is receiving typical returns over the long term.
Investing for the first time in late 2009 was excellent timing, in retrospect. The stock market was near its great recession low. In the next decade, the market produced significant returns. My resolve to buy and hold index funds for the long term wasn't ever tested by a substantial drop.
Sure, there were a few corrections where my investments decreased more than 10%. But there weren't bear markets where my investments fell 20% or more. I wouldn't know if I could stick to this strategy until I experienced a bear market.
The beginning of 2020 was more of the same
The beginning of 2020 started strong. My portfolio continued to grow with the market and hit an all-time high in mid-February. Initially, it looked like 2020 would be another outstanding year for my assets.
I still hadn't experienced a bear market, so I had no clue how I would feel when it happened. Would I freak out and sell my holdings at a loss, or would I stay strong and continue to invest during the downturn? Little did I know, my test was coming.
The markets took a nosedive in late February and March
Things changed in late February and March when the COVID-19 pandemic took over the United States. It started shutting down the economy. I watched the markets tumble.
Rather than freaking out, I saw this as a buying opportunity. At a time when many others were panicking and selling their investments, I decided to purchase more.
My portfolio still plummeted. From February 19 to March 23, I lost over $115,000 of value. This was despite purchasing an additional $33,000 of index funds by investing some of the money I kept aside after selling my home.
Despite this dramatic decrease, I never once considered selling my investments. I've commonly read reports that state missing only a few of the best days in the stock market can drastically reduce your returns. The ironic part is many of the best days in the stock market come shortly after some of the worst days.
I knew I needed to stay in the market to take advantage of the coming swings to the upside. I had no clue when the bottom was coming. Honestly, neither did anyone else. If I sold, I wouldn't have any idea when to put my money back in until it was too late and I missed some of the recovery.
My portfolio started recovering
On March 24, my investment portfolio turned a corner and slowly started digging itself out of its hole. I continued to invest more money as I could. By May 20, my portfolio had recovered a large chunk of the losses just over three months later. It even reached a new all-time high thanks to extra investments I bought. The gains have continued from there.
There wasn't a single time during the short bear market where I considered selling. I stuck to my plan. I even bought more investments thanks to the equity I received from selling my house. This confirmed my hopes that I had chosen the right investment strategy from the beginning.
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