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  • Writer's pictureRyan Jones

Are you just starting out in mutual fund investing? Don’t fear the dips.

When you first get started in long-term investing, people sometimes panic and want to jump out as soon as things turn south. Dave Ramsey says on his radio show that the only people that get hurt on a roller coaster are those that jump off during the ride. This is why most people tell you to commit to 3-5 years or longer if you can plan for it. You will reap the rewards of having discipline and commitment.

Let’s look at four solidly performing index mutual funds at Fidelity (FSKAX, FSMDX, FNCMX, and FXAIX). I’m not endorsing these funds in this post. I am just illustrating that mutual fund investing can be scary at the start if you don’t have the long-term confidence and having these examples helps illustrate my post.

If 10 years ago, we invested $10,000 in January 2012 in each of these mentioned funds and nothing more. Today you’d have $40,329, $34,990, $55,594, and $41,942 in those accounts, respectively. That is a year-over-year rate of return of 15.0%, 13.3%, 18.7%, and 15.4%, respectively.

If we take a graphical look at our first year of 2012, that very first dip in May (see orange marker) may have caused you concern and you might have said this decision to invest was stupid and decided to pull out your money, maybe even at a loss. But if you follow the graph out to the rest of the year, things bounced back and gave us a return of 16.9%, 18.1%, 13%, and 16.8%, respectively, for the year.

Jump to a 10-year view and the "big" dip (see orange marker) we might have been worried about at the start is just barely noticed. See below.

Still looking at the 10-year view (below), take a look at the spring of 2020 when the pandemic hit, and then take a look at how things bounced back by the end of 2020. You see a few more dips, and we are in the middle of another one today at the start of 2022.

Now I can’t read a crystal ball, and no one can confidently say what or how things will play out, but picking good, solid mutual funds has shown over generations' worth of data that things do bounce back. So, stay with it confidently.

If needed, work with a good coach or financial advisor to help you gain the confidence you need to sleep better, especially when living through the dips.

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