The stock market has had a tough few months and many investors are wondering what this could mean for their portfolios.
the S&P500 is down more than 17% since the beginning of the year. JThis puts it firmly in correction territory (which implies a decline of more than 10%) and brings it closer to a bear market (a decline of more than 20%).
While there is no simple answer as to when this downturn will end or how far stock prices will continue to fall, there are ways to prepare. Here’s what this crisis could mean for your investments.
It might get worse, but it will get better eventually
No one knows how the market will behave in the weeks and months to come, and this uncertainty can be daunting. It’s also possible that we haven’t seen the worst of this downturn and that stock prices continue to fall.
However, the long-term performance of the market is much more certain. The S&P 500 has faced many corrections and crashes over the decades, and it has managed to recover from each one.
In the past 20 years alone, the market has seen everything from the bursting of the dot-com bubble to the Great Recession to the crash at the start of the COVID-19 pandemic, as well as countless smaller downturns in road course. Even so, it still achieved positive average returns.
Past performance is not always indicative of future returns when it comes to the stock market. But chances are the S&P 500 will also recover from this downturn, given enough time.
What should you do now?
When the market is down, it’s normal to feel like you have to do Something to protect your investments. However, the best thing you can do is often to do nothing at all: just sit back and hold onto your investments until the market recovers.
In the short term, your investments will likely lose value if stock prices go down. But keep in mind that you don’t lose money unless you sell. By holding onto your investments for the long term, you will eventually see your portfolio rebound once the market inevitably recovers.
However, it is essential to ensure that you have the right investments. Not all stocks can survive periods of market volatility, but strong stocks of healthy companies have the best chance of surviving. By ensuring that every stock in your portfolio is a solid long-term investment, your investments are much more likely to recover from a downturn.
The key to surviving volatility
Maintaining a long-term perspective will make it much easier to tolerate a market downturn. Even if stock prices fall further, keep in mind that historically the market has had a 100% success rate when it comes to recovering from a crisis.
When you have a solid portfolio, there is a very good chance that your investments will survive. By choosing the right investments and keeping a long-term perspective, you can rest easier no matter what happens with the market.
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