In terms of a single market fund, you can invest in any index over which it’s easy to track the prices of shares. But what about in a portfolio of individual stocks? That is where swings are the greatest: The price will shift by a number of percentage points over long time horizons and will take many short-term positions out of the equation.

The following chart shows the actual gains and losses of a particular stock portfolio over the last 30 years in the U.S. As a general idea, the blue line shows the typical 50/50 weighted return for index funds, the red line shows the average return for index funds, and the green line shows the average long-term return for indexes over the 30-year period. These return curves don’t give an exact picture of what is happening in the stock market, but they do help paint a more complete picture of the history of the market. You can see that the S&P 500 index returns generally declined over the years due to the bear market in the economy between the late 1980s and 2001.

Chart courtesy of Charles Schwab: Vanguard’s Market Neutral/Inverted Return Program.

As you can see, the market has returned better in the short term than longer term, but not always: In fact, the chart for index funds over the 30 years shows a pretty similar decline in share prices in the short term as it does over a 30 year period in a balanced stock portfolio when all else is equal over a period of years:

Chart courtesy of Charles Schwab: Vanguard’s Stock Portfolios.

In short, while the returns of market investments have generally been lower in the long term, the volatility may come as a relief in the short term to the investors who keep their money in individual stocks. But to most investors a short term return of -11% in a short term market may feel more like a short term loss than a long term gain.

You don’t have to be right on the money for the market to make you anxious, though and you don’t have to hold on to the stock for many years, in the hope it will turn out to be a winner. In the end though, the biggest danger in being right is not falling off the horse but a mispricing of risk that is simply too high and you could end up with a portfolio with too much cash in it. So for those times when you’re feeling like you’re losing a lot of money, stop and try a different approach. In

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