The ups and downs of stock market prices, also called volatility, is normal and to be expected. That is why stocks (or stock mutual funds) should only be selected for financial goals that are at least five years or more in the future. Adhering to this guideline will provide an investor with time to work through market downturns, called bear markets, without having to sell shares at a loss. Historically, stocks have outperformed other asset classes (e.g., bonds and cash assets) but have also had the highest volatility. This risk-reward trade-off is a key principle of investing. A bear market presents investors with many investment opportunities, but fear often prevents the potential investor from investing money in the stock market. Because of the cyclical nature of the economy, stock values will increase during the recovery or expansion phase. This means portfolio values will rise also if the stock selection has been made wisely. We would like your feedback on this Personal Finance Frequently Asked Question.

Browse related Faqs by tag: personal finance, investing