The stock market has seen some intense ups and downs over the past few months. After falling 13% from its early January peak, the S&P500 has almost recovered from those losses in the past two weeks.
However, some investors worry that more volatility could emerge between the war in Ukraine, high inflation, ongoing supply chain problems and other macroeconomic factors.
To be clear, nobody can predict exactly how the market will develop. A crash may or may not be imminent. But when stock prices plummet, should you keep investing while they’re falling? And what can you do to protect your money on the go?
Keep investing even in downturns
When the stock market is shaky, it can be tempting to sell stocks to take risk off the table, or to stop investing altogether. In most cases, however, it is advisable to continue investing as you would any other time.
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The market is unpredictable. If fear tempts you to withdraw your money and then stock prices soar, you’re missing out on those gains. And if you later reinvest when prices are higher, you’ll likely end up paying more to get back into those stocks than you sold them beforehand.
While it may sound counterintuitive, it is actually safer to keep your money in the market during times of volatility. While your portfolio can take a hit in the short term, the US market as a whole has a long track record of recovering from crashes. By staying invested in a variety of stocks, you should be able to just weather the storm and wait for the market to recover.
It can also be wise to buy more stocks during downturns. When stock prices fall across the board, it creates opportunities to supercharge quality stocks at discounted prices. Then, when the market inevitably recovers, your portfolio will reap the rewards.
How to keep your money safe
Keeping investing during market downturns can be wise, but there are a few other strategies to consider to keep your money as safe as possible.
At first, only invest money that you will not need in the near future. While the US market will most likely recover from any given crash, it could take months or even years to fully recover and set new highs. If you have a well-stocked emergency fund that isn’t invested in stocks, you should be able to leave your stocks alone in the event of an unexpected event. This allows you to avoid situations where circumstances force you to sell investments when their value is low.
With concerns about a possible looming downturn, now would also be a good time to review your investments and verify that every stock you own still deserves its place in your portfolio. The companies most likely to survive a market crash are those with strong underlying business fundamentals. When a company is healthy itself, its stock has a better chance of performing well over the long term, despite periods of volatility.
Crashes can be nerve-wracking for even the most seasoned investor, but there are steps you can take to protect your money. By keeping investing and choosing the right stocks, your portfolio is more likely to thrive over the long term — regardless of what happens to the market in the short term.
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