For many people, the words "stock market" and "crash" are still inextricably linked. This is certainly also due to the fact that sharp price falls in connection with economic crises or other events reach the general public via the media. Upward trends, on the other hand, which usually proceed at a more leisurely pace than crashes, are more a topic for the specialist media. This can quickly give the impression that things are constantly crashing on the stock markets and that stocks are only something for speculators.
Staying power more important than stock market knowledge
This is one of the big misconceptions. It is true that the stock markets are well suited for quick profits - and losses. But they are also excellent for long-term asset accumulation for retirement, especially if investments are made regularly and broadly diversified across the stock markets. This does not require too much knowledge at all. Equity funds take care of risk diversification. Savings plans or fund policies enable automatic, regular payments.
More important than in-depth stock market knowledge is perseverance. Even in times of market stress, it is important to remain calm and not to sell in a panic. After all, stocks go up and down again and again. Even sharp falls in share prices are not unheard of. The good thing is that investors with a long-term investment horizon need not fear them.
In the past 25 years alone, share prices have plunged several times: when the dotcom bubble burst in the spring of 2000, during the global financial crisis in 2008 and at the start of the Corona pandemic in February/March 2020. The stock markets have always recovered and risen to new heights. The longest period followed the dotcom crisis, which was prolonged by the terrorist attacks in the USA on September 11, 2001. After a good seven years, the old record level of the German share index DAX® was reached again. By contrast, after the sharp Corona slump, the recovery lasted less than a year.
Automatically buying at low prices
Setbacks on the stock markets are therefore not a bad thing. Some even regard them as a gift, as they enable favorable entry prices. It doesn't have to be about catching the absolute bottom. Anyone who regularly invests a fixed sum in equity funds automatically benefits. For the monthly 100 euros, for example, you get more shares when prices are low. To benefit from this cost-averaging effect, it is important to invest a fixed sum regularly and not to buy a fixed number of fund units. And the effect really comes into its own when the underlying fund moves upwards over the long term, but at the same time shows large fluctuations and offers many opportunities to buy at a low price.
The DAX® return triangle of the Deutsches Aktieninstitut shows how effective long-term saving on the stock markets is. The current edition visualizes the annual average returns on the German stock market over a 50-year period from 1971 to 2021. A 20-year savings plan with a fixed amount invested in DAX® shares would have generated an average annual return of between 4.7 percent and 16.1 percent, depending on the year in which it was launched. Even with only 15 years to run, the result would always have been a positive return - despite all the stock market crises over the past 50 years.
