Another important lesson that’s hard to internalize is that your portfolio value moves in percentages, not absolute dollar amounts.
If your portfolio is worth $10,000, then a 1% swing equates to $100. But if your portfolio is worth $250,000, that same 1% swing now equates to $2500. And if your portfolio is with $1.5M, that 1% swing now equates to $15,000.
The overall impact on your net worth is the same in all three cases, but when your portfolio gets large (which is not unusual if you’ve been steadily contributing to a retirement plan for over 20 years), those swings can seem really scary. You just need to remember that the market swings both ways, and that large portfolio will translate to similarly large (in absolute dollar amounts) gains when the market recovers later on.
Which is why most advisors today recommend against picking individual stocks. It’s very hard (nearly impossible over long periods of time) to figure out which stocks will win and which will lose. But the aggregate behavior of the entire market is quite predictable (over long periods of time). Hence the advice to invest in passive mutual funds and ETFs - so you have a little bit of everything and can therefore benefit from the general upward trajectory of the market as a whole.
But also rebalance. Otherwise, your portfolio ends up getting skewed away from the asset allocation you want (or that your advisor is recommending).
For example, let’s take a trivial example where you want to have 50% stocks and 50% bonds. Now let’s say that the stocks outperformed the bonds one year - they grew in value faster than the bonds did. So after a year, your portfolio is now (for example) 60% stocks and 40% bonds. And if this happens again for another year, you may end up with 70% stocks and 30% bonds - which is a far more aggressive portfolio than you wanted.
The solution is to rebalance. Sell some of the stocks (the “winners”) and buy bonds (the “losers”) with the proceeds, so you end up once again with 50% of each. And when the market swings in the opposite direction in the future, only 50% of your assets (the stocks) will be affected, instead of 70%.
Any brokerage firm should be able to set up your account this way. Tell them what investments you want, and at what percentage of your portfolio. And then tell them to periodically rebalance (perhaps quarterly or monthly) in order to keep the overall allocation similar to your chosen percentages.
Some financial companies can even monitor your asset allocation and trigger rebalancing when the pattern drifts more than some percentage from your chosen allocation, instead of based on time elapsed, which is even better, if you have the option.