-- Q: If the stock market always bounces back, why would any investor care about volatility in the short-term?
A: Investors get into trouble when they start to think like traders.
You're right. If you're a long-term investor who is planning to have your money invested in a diversified basket of stocks for five, ten or even more years, then there is little sense in getting yourself upset over the short-term day-to-day gyrations of the stock market.
Stocks gain close to 10% a year on average. But those last two words, on average, are critical. The stock market is not a nice and easy, slow and steady money generator. It's a torturous, painful and fitful animal that contorts and bristles at even the slightest news.
Stocks can crash, soar, overreact or flat line during times you'd least expect it. The value of companies is driven by countless unknowable and somewhat random events ranging from news about the economy, investor confidence, corporate earnings and regulation. And if there's no news, investors can move the value of stock by second guessing each other or the countless computers that are constantly buying and selling investments at lightning speed.
All this is a long way of saying you're exactly correct. If you have a long-term investment horizon, there's no sense worrying about short-term movements in stock prices.
Unless you're planning to panic sell amid a short-term correction, which would be a mistake, the value of an asset from minute to minute is pretty meaningless. So, don't make the mistake of trading when you should be investing.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at firstname.lastname@example.org. Follow Matt on Twitter at: twitter.com/mattkrantz