It’s hard to demonstrate exactly why you should ride out the fluctuations and be in the stock market for the long term, but maybe this will help.
Imagine that the stock market is a gigantic airplane. The investors are the passengers. The volume of the stock market are the number of available seats on the plane and passengers can buy as many seats as they want.
There are some fees involved since some nut (a broker) has to get you on this flying airplane and that’s hard to do… it’s flying after all. The broker also finds the seat you get from someone who sold. When you sell, you wait for a broker to come and find someone to sell your seat to. When the broker delivers them to the plane, you get off and the broker takes you home.
Now if you’re always buying and selling you’re paying the broker an awful lot for their services. You better be hoping to be picking your seats really well. Without a seating chart and without knowing where the plane is going… it’s hard to pick a choice seat. In fact, very rarely does it happen as planes are filled with plenty of lousy seats. Not everyone can fly first-class.
Let’s say someone looks out the window of the plane and sees a mountain dangerously close to the plane!!! He screams and causes a panic and everyone wants off the plane. There aren’t enough people to sell to so people start selling their seats for ridiculously low prices just so they can get off the plane. Others start jumping out of the plane without regard to their own safety. Some people get really lucky and land on a trampoline or awning or swimming pool or something, but most people aren’t so lucky.
Eventually by statistics as people bail there runs out of pilots among the general populace who can fly the plane and the whole thing crashes. However, if people saw the mountain and as a team went to inform the pilot and flight attendants and calmed everyone down the plane may just fly around the mountain. Oh sure, some dips and price fluctuations may occur for seats as some people may decide that air travel isn’t for them and they go off in search of trains (savings accounts) or boats (bonds) or maybe high speed bullet trains (CDs) or maybe they won’t travel at all (real estate).
But the point is as long as people help each other out, avoid jumping out of flying planes without parachutes, and allow pilots to fly the plane to their best ability, then everyone onboard benefits.
And that’s my plane analogy.
Oh, by the way, sometimes the plane goes up and down cuz it needs to land for gas or fly over mountains, but over all it flys pretty smoothly. Sometimes there’s unstable air which causes turbulence and panic – maybe the plane even drops a thousand feet! Sometimes the bathrooms get clogged and the bad press makes people want to stay out of the airplane. Sometimes even the expensive first-class seats are crappy. Sometimes a coach seat turns out to be an amazing experience on a trip.
See… an airplane.