Investing when the market is rocky can be daunting. The S&P 500 has been hovering around bear market territory, falling more than 14% since its peak in early January.
Although stock prices have rebounded somewhat in recent weeks, many investors are still worried that a crash could be looming. And with all the uncertainty in the world right now, there’s a chance that stock prices might fall further.
To be clear, nobody knows for certain what will happen with the market. But there are a few reasons why I’m not concerned about a potential market crash, and you shouldn’t be, either.
1. You won’t lose anything unless you sell
When stock prices are falling, it can be nerve-wracking to watch your portfolio plummet in value. But no matter how far prices drop, you won’t actually lose anything unless you sell your investments and pull your money out of the market.
Losing value is not the same as losing money. Your investments will likely lose value if the market crashes because your stocks aren’t worth as much when prices are lower. When stock prices rebound, though, your portfolio will increase in value once again. If you simply hold your investments throughout that time, you won’t have lost anything.
Holding your stocks is key, then, to surviving a downturn. It’s not always easy to keep your money in the market when stock prices are down, but this strategy can better protect your savings in the event of a crash.
2. The market will rebound eventually
The stock market has a long history of recovering from even the worst downturns. In fact, not only has it rebounded after crashes, but it’s also gone on to experience positive average returns over the long run.
Investing is a long-term strategy, and it doesn’t necessarily matter what the market does over the coming days, weeks, or even months. What really matters is how it performs over years and decades. And historically, it has done well over the long term.
3. The right investments can protect your portfolio
Not all stocks are able to survive a crash, but the strongest investments are the most likely to bounce back. It’s critical, then, that every stock in your portfolio is a solid long-term investment.
Healthy companies make for strong stocks. These organizations will have the strongest fundamentals, including a competent leadership team, solid financials, and a competitive advantage in the industry. All of these factors give these companies an edge during market slumps.
When your portfolio is filled with stocks from these types of companies, there’s a much better chance that your investments will survive even the worst crashes.
Investing during periods of volatility isn’t easy, but keep in mind that downturns are normal. Nobody knows what the future holds for the market, but it will get better eventually. By choosing the right investments and holding them for the long term, you can rest easier knowing you’re as prepared as possible.