Looking Rationally at Market Highs and Lows

You’re investing hard-earned money, so you want to enjoy a sense of comfort and confidence in your investments’ potential to perform as expected over time. I emphasize the phrase over time because chasing short-term performance can drive you crazy.
Investments can look mighty risky if you track their performance every day. In contrast, risk tends to flatten out a bit if you look at it year to year. In fact, since the late 1920s, few classes of investments have lost money over a 10-year period. Of course, some individual investments have lost money, but the general rule applies: Holding on to investments for a longer period of time will reduce your exposure to losses. Do you want to avoid undue risk? Invest for the long-term — or, at the very least, five years. If you need to tap your investments earlier than that, stick to shorter-term cash equivalents, such as money market mutual funds (which invest in high-grade bonds with shorter maturities), certificates of deposit, and money market accounts. Learning how to gauge the market is different from thinking you can predict the market. No one —not even the most savvy broker — knows with any real certainty how well or how poorly the market will fair in the future.