Markets move in two directions, and protecting your investment is one key to long-term investing success. In a sharp market decline, it does not take long before you begin losing your hard earned principal. It can take twice as long to recover from large losses. Major bear markets occur on a regular basis, and the losses are devastating both financially and emotionally. Not only can losses be large, but bear markets can also last for years. The duration of the average bear market is almost 7 years with losses of 37%. A 37% loss requires a 62% gain to get back to even!
The power of compounding is the second key to long-term investment success. It can generate powerful results for the investor. However, it only takes one poor performing year to ruin investment returns and greatly diminish the compounding effect. Steady and consistent returns win!