The past few months have been rough for the stock market. After peaking in early January, the S&P 500 fell sharply later in the month. Since then, it’s rebounded only to drop again, entering correction territory twice since the beginning of the year.
This type of volatility can be tough to stomach, especially if you have a lot of money tied up in your investments. But no matter what the market does, there’s one thing to avoid if at all possible: pulling your money out of the market.
Why it’s best to avoid withdrawing your money
When the market is shaky, it’s human nature to want to pull your money out. But that can be risky for a few reasons.
For one, a drop in stock prices doesn’t necessarily mean a crash is looming. If you sell all your investments thinking the market is going to sink, there’s always a chance stock prices could bounce back immediately.
If that happens, you’ll miss out on those gains. Also, unless you plan to stop investing forever, you’ll need to reinvest your money at some point. If the market has gone up since you sold your stocks, you could end up paying a premium for the exact same stocks you just sold.
Selling your stocks to try to avoid the impact of volatility essentially involves timing the market, which is an extremely difficult and risky strategy. If you sell your stocks and the market rebounds, you’re in a tough spot. But if you sell too late and prices have already plummeted, you may be selling at a loss.
How to keep your money safer
While it may sound counterintuitive, one of the best ways to help your investments survive periods of volatility is to do nothing.
Market downturns are daunting, but they don’t last forever. While it may take months or even years, the stock market will eventually bounce back. And when it does, your investments should rebound along with it.
Taking a long-term approach is one of the most effective ways to avoid losing money. Although your stocks may take a hit in the short term if the market falls, you don’t actually lose anything unless you sell. By simply holding your investments for the long term regardless of what the market is doing, you can ride out the storm.
The key, then, is to make sure you’re investing in the right places. Not all stocks are strong enough to survive a market downturn, but healthy companies with solid fundamentals have the best chance of pulling through. The more of these stocks you have in your portfolio, the better off you’ll be.
Stock-market volatility can be nerve-racking, but it’s easier than you might think to protect your savings. By choosing the right investments and holding them for the long term, you can rest easier knowing your money is as safe as possible.