Let's say you invest $1,000 today. Over the next year, the market drops 50 percent. In Scenario 1, you panic and sell all of your stock, locking in your loss. You go and buy Treasury bills, which give you a safe, guaranteed 3% annual return. How much is the portfolio worth at the end of Year 6 in this scenario? $577. And what if you stay invested? How much is the portfolio worth at the end of Year 6 in Scenario 2 (stay calm, and don't sell or change anything)?

Year	Sell – Return	Sell – Value	Stay Invested – Return	Stay Invested – Value
0		$1000		$1000
1	-50.0%	$500	-50.0%
2	3.0%	$515	13.4%
3	3.0%	$530	31.0%
4	3.0%	$546	5.4%
5	3.0%	$563	23.2%
6	3.0%	$580	30.9%

Answer rating: 100% (QA)

In Scenario 1 where you sell all of your stock after a 50 market drop and invest in Treasury ... View the full answer