In the process of investment, especially when investing in stock assets, we face the biggest enemy when it falls. How to deal with the decline is one of the most critical issues for us to improve earnings.
1、 What is the maximum decline of index funds
Many friends have such questions when investing in index funds. What is the maximum decline of index funds? When we invest in index funds, we are bound to encounter a decline, because volatility is the most significant feature of stock assets. There will be ups and downs if there is volatility. The long-term return of index funds is more than 10%, but it is not an evenly rising variety. It is normal to have 20% - 30% fluctuations when holding index funds. If you invest at the beginning of the bull market, the loss is the largest, usually more than 50%.
If you buy at a normal valuation, the maximum decline may be 30-50%. If you buy at an undervalued price, the maximum increase is usually within 30%. This is why we underestimated index funds and tried to reduce possible losses.
2、 Why the Underestimated Buying Index Fund Loses Money
It is cheap for us to buy an undervalued index fund, but why does it still fall? What we usually say about valuation, such as P/E ratio, is market value/profit. Profit is the profit of the past year or the last four quarters, and it changes only on a quarterly basis. Therefore, valuation is not an effective indicator in the short term, but rather affects the long-term trend of 3-5 years. When we underestimate, we buy index funds, In the next 3-5 years, it will probably be profitable.
In the short term, the rise and fall of the stock market are more affected by the market news and sentiment. Therefore, undervalued buying will fluctuate. However, the fluctuation is smaller than that of normal or overestimated buying, and most of the time, the decline of undervalued index funds is within 30%.
