<prompt> Human: TLDR: Returns of 7 are historic averages. There is a ton of variability, and long time frames with zero return after inflation happen. Dont let the last 10 years fool you, big drops occur. If youre feeling sick after a 10 drop reallocate your portfolio so you can be comfortable riding out a 20, 30 or 40 percent drop without panic selling. Dont try and time the market and wait for an uptick before you reallocate.With the recent drop in the SP 500, there have been a number of posts here from people who are worried about their portfolio allocation. Im seeing a lot of responses that are effectively Dont try to time the market, the historic average return is 7 inflation adjusted, 10 not adjusted. In the long run the stock market will go up.While those posts are mostly accurate, they miss the full story. Part of the reason stock returns are higher than other assets is because of the volatility. The historic average return is 7, but there are very few years that actually return that amount. Here are annual non inflation adjusted returns Its typically a string of years with high returns, followed by a year or two with big drops. This leads to the next point, that there can be long time periods over-which the stock market return is 0. See this graph make sure you turn on log scale and inflation-adjusted. The SP 500 didnt recover from its market peak in late 2000 until the end of 2014. The market didnt recover to the 1968 peak until 1991. And of course, with the Great Depression, the stock market didnt recover to 1929 levels until 1958, and even as late as 1985 the SP dipped below its 1929 peak. As a worst case scenario, lets imagine you are born in 1911: at 18 you invested 5,000 dollars at the peak of the bubble, in an SP index fund. In 1985, you are 64 and getting ready to retire, when you look at the investment account its worth 35,000! Of course, if you had invested in TIPS Treasury Inflation Protected Securities youd have just about the same amount. Your real return over the last 46 years was basically zero.Particularly when you account for inflation, there are long time stretches in American history that have low to negative returns. There is no guarantee with the stock market that the boom and bust periods will line up the way you need them to fit your life goals.But the most important thing to take away, is that the surest way to lose money on the stock market is to buy high and sell low. Everyone knows this, and yet, lots of people do it anyway. The last 8 years have been spectacularly good for stock market investors. Since 2008 we have had no years with significant losses only two years that were around -0.5 in nominal terms. There are a lot of young people in their 20s and early 30s on this sub, who started investing post 2008. We may think we have a solid understanding of risk, but as Mike Tyson says, everybody has a plan until they get hit in the face. If you have an aggressive stock allocation, how sure are you that you could ride out the downturn and not sell? How are you feeling right now, having just lost 10? What would you do if you lost 40 2008, 1937 and again in 1939-1941, 50 2000-2002, 1973-1974 or 75 The Great Depression?Assistant: None of that matters, you should still stick you a balanced portfolio plan.When the crisis hits, you shouldnt do anything different.You should only have a large stock share if youre decades away from retirement, and at that point, a 40 drop should not make a difference in your life if youre doing it right.TL;DR: a 40 drop would only worry you if youre doing it wrong to start with.Human: This is the sort of attitude that concerns me. How sure are you that you wouldnt be worried? Are you really sure that a 40 drop wouldnt matter? If you had 200k in your retirement account and saw Eighty Thousand Dollars disappear? I think its important that people take the time to come up with contingency plans for how they will react and not rely on an untested assertion of their own risk tolerance.  <response>: 100 sure, or at least sure that there is no better alternative.Heck, a guy won a Nobel prize for proving that, you know.And no, a 40 drop wouldnt make a difference when youre young. If youre doing it right from the start, the only thing to do during a drop is nothing.This isnt advice based on your risk tolerance or whatever. This is The Right Thing to do, mathematically proven and tested in the real world over decades. If youre not doing this, youre doing it wrong.Investing is boring, if it isnt boring to you, youre doing it wrong. 