Invest in stocks. Don’t trade simply on the news or emotion of the moment. Follow the path to profits.

We know what happened yesterday with President Donald Trump‘s announcement of wide ranging tariffs on allies and foes alike. We’re about to find out what today brings. But no one knows what will happen tomorrow. No one knows how equity markets will react to new information. Investors don’t know whether all the current information as well as speculation about the future is already reflected in the broad equity market. This point is of critical importance.

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But we do know some other important points.

We do know that stocks in United States equity markets go up over time. We do know, for a fact, that over the past 50 years, the S&P 500, an index of 500 publicly traded companies, has delivered an average annual return of 12%, with dividends reinvested. We do know that after inflation, returns from investing in this benchmark equity index have averaged over 8%. We do know that after compounding (returns on original investments and investments of the returns on that original investment), real returns double every nine years.

By contrast investing in a diversified portfolio of real estate assets located in the U.S. has only generated real, inflation adjusted, returns of about 4%. 

In late February, the S&P 500 index reached an all-time high of 6,152. This week, this broad index is trading around 5,650. The index is down almost 10% from the February high. U.S. equities have fallen for various reasons, including relatively high valuations, worries about an economic slowdown and what is perhaps the most important reason for the sell off, uncertainty about President Trump’s tariff policies. 

Markets do not like uncertainty. People don’t like uncertainty. 

When stocks fall precipitously, investors understandably become anxious. Investors don’t want to lose money. The emotional instinct to sell is strong now because long-term investors have generated large unrealized returns. Since the end of the COVID-19 pandemic in 2021, the S&P 500 is up over 150%. Moreover, some major American technology stocks have appreciated by over 100% in just the past 12 months. 

Many studies have shown that the emotional pain of losing money exceeds the emotional joy of making a profit. Loss aversion is twice as powerful as the desire for more profit. People hate losing what they thought they had. 

But in uncertain times such as now, investors should take comfort in the historical data. Investors should also know that if they trade out of the market, planning to get back in when equity markets have stabilized, they risk missing the inevitable bounce in prices. When that bounce will occur, is just a guess. But 50 years of data, and longer, tells us that markets will rebound and go on to new all time highs. 

The historical data says that missing just the 10 best days of market performance over the past 30 years reduces returns by over 100%. Since 1995, a person who invested $10,000 in the S&P 500 and stayed fully invested would have a portfolio worth $224,000 today. But an investor, who was out of the market for one reason or another on the 10 best trading days of the past 30 years, would have a portfolio worth only about $103,000. 

STOP PRETENDING REPUBLICANS ARE CUTTING THE DEFICIT

Missing those best ten trading days, would cost over $100,000 in lost potential profit. It gets worse when a person misses the 20 best trading days for the S&P 500 over a 30-year period. A $10,000 investment would only be worth about $60,000. It only gets worse, if an investor misses the 30 best days. A $10,000 investment would only be worth $38,000. 

The bottom line is that the best investment advice is to stay fully invested in a diversified portfolio of excellent stocks and to ignore the “noise” about politics or economics or anything else. Over time, the U.S. economy grows and U.S. equities follow the economy higher. 

James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society. He can be reached at [email protected].