Why Do Stock Prices Go Up and Down So Much?
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"Not getting caught up in the daily churning of the market is actually one of the best things you can do as an investor."

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Stock prices go up and down so much because of us—or rather, millions of investors like us. Following one of the basic tenets of economics, public demand dictates price movements. And en masse, we are very fickle people. Our opinions about a company can change based on any one of a million different things, from an underwhelming earnings report to concerns about the overall economy.

The good news is day-to-day volatility is completely normal. Not getting caught up in the daily churning of the market is actually one of the best things you can do as an investor.

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Remember that over the long term, the odds are in our favor. Over the past 90 years, Standard & Poor’s 500-stock index has returned 9.8 percent a year, on average. And that includes big bear-market losses, like when the S&P 500 dropped 44.6 percent in two months in 1929 and 51.9 percent between October 2007 and November 2008. Despite a number of big falls, stocks historically have risen significantly over the long run. So your best bet is to stick with them and give your portfolio a chance to recover.

When daily market movements have you feeling queasy, try to focus on the big picture. Remember that if you panic and sell when stocks are shaky, you're locking in losses and may make it more difficult to reach your goals. If you stay the course—and are otherwise on the right track with a well-diversified portfolio—you may experience some setbacks, but you'll still be chugging along toward your goals.

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