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1 in 3 people say they'd pull money from the market if it drops 10% — experts say that's a mistake

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For some investors, ongoing stock market turbulence fueled by the widespread coronavirus may be hard to stomach. But pulling money out of investments when the market gets rough is a big mistake, experts say. 

Nearly 1 in 5, or 19%, of respondents said they would tolerate no more than a 5% decline in the stock market before giving up on their investments, according to a new Magnify Money survey of 740 Americans who have a retirement savings account. Even more investors, and in particular those in their 20s and 30s, would jump ship at a slightly higher decline: One in three, or 33% of respondents, said they could handle only up to a 10% market decline before abandoning stocks for retirement, according to the survey. 

Overall, only 22% of respondents say they wouldn't touch their long-term investments, no matter what's said on the news. And yet that's what experts advise.  

Downturns are relatively common and in the past have always ended in upturns. Experts worry that, by letting fear drive their decisions, young investors in particular may be missing out.

'This is for certain: One locks in a loss by selling' 

Market ups and downs are normal. Even legendary investor Warren Buffett, who has optimistic long-term expectations for the market, recently told CNBC that he doesn't think "there's any way to predict" how stocks will perform over a matter of days or months.

But what is certain is that if you pull out your investments during a decline, you've made it much tougher for your finances to recover if the market rebounds, as it always has in the past

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"Long-term investors with the ability and fortitude to remain in the market should do just that," Mark Hamrick, a senior economic analyst at Bankrate, recently told Grow. "This is for certain: One locks in a loss by selling."

If you're still decades out from retirement, the advice is pretty clear: Stick with it, and ride out the rough period. In fact, experts recommend not even checking your 401(k) or IRA more than once a quarter, so you're not tempted to make an emotional decision. 

Investors in their 20s, 30s, and 40s still have plenty of time to recover these short-term losses and let the power of compound interest help them grow their money, says Marguerita Cheng, a certified financial planner and the CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.

"You build wealth by not trying to time the market by the time you're in the market," says Cheng. "As long as you have a job and you're able to pay your bills, pay your loans, continue to save for retirement ... you can really take advantage of the time value of money." 

Younger investors have more to gain from staying invested 

A healthy market cycle includes peaks and valleys. Still, it's natural that sharp drops over a short period of time like the ones we've seen recently can be scary for investors who haven't experienced them before, says Cheng. Keep in mind, the past 10 years were a remarkable decade for investors, with the longest and best bull market ever and several record-busting years for investment performance.

That may be why younger investors feel less able to stomach a stock market decline than older investors, according to the Magnify Money survey. Almost 40% of Baby Boomers would stick with the market despite any decline, versus only 16% of millennials and 18% of Gen Xers.

But though it may seem counterintuitive, a market decline can actually benefit younger investors. They are best poised to take advantage of what Cheng calls the "trifecta" of a long time horizon, dollar cost averaging, and portfolio diversification to help them build wealth over the long term.

The reason: When the markets drop, shares of stock are cheaper than they were before, meaning your contribution goes further, letting you buy more shares for your money. "Any time the market is down, it can be a great opportunity to buy some stock on sale," Tess Zigo, a financial advisor at Waddell & Reed, a financial firm in Chicago, recently told Grow.

Setting up recurring, automatic contributions to your 401(k) or IRA lets you take advantage of lower prices through dollar-cost averaging. This strategy also helps you by removing the temptation to try and time the market, and by taking some of the anxiety out of investing decisions.

"It can be very scary if you have existing shares in the market," says Cheng. "They're going to decrease in value. I get it. But when they dip in value, you're going to be able to buy more shares."

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