It’s hard to be an investor when the market is down.
Stock prices continue to fall, with the S&P 500 more than 18% from its peak in early January. Even more puzzling is that no one knows how long this recession will last or how far prices will fall before the market bottoms out and starts to recover.
That uncertainty can make it hard to know how to manage your investments. Should you keep investing? Wait until the market stabilizes? Or maybe even take your money out of the market entirely? This is what you need to know.
What does a recession mean for your investments?
In most cases, the best way to survive a market crash is to continue with your normal strategy. Carry on investing as usual, keep your current investments and just ride out the storm.
While it may seem counterintuitive to keep throwing money at the market when prices are plummeting, this strategy could actually help you earn more over time.
People are also reading…
Since its inception, the market has faced dozens of downturns. In fact, since 1928, the S&P 500 has fallen more than 20% on 21 separate occasions. However, it has managed to bounce back from every dip and has posted positive average returns over time. No matter how bad the current downturn is, the market is very likely to bounce back once again.
If you continue to invest now, that puts you in a fantastic position to see substantial returns in the future. Stocks are essentially for sale right now, so it’s a good opportunity to invest at a discount. Once the market inevitably recovers and share prices rise again, the value of your investments could skyrocket.
When would it be better to avoid investing?
Most of the time, it makes sense to keep investing even when stock prices are falling. However, there are some situations where you’re better off putting your money elsewhere.
If you don’t have an emergency fund, for example, you may want to focus on building a solid savings bank before you invest.
Recessions are one of the worst times to sell your investments, because stock prices are lower and you are selling at a discount. If you invest all of your extra money and then face an unexpected expense, you may end up losing money if you sell your stock during a recession.
Likewise, if you’re struggling to make ends meet, you’re probably better off waiting to invest. While the market is very likely to recover eventually, it could be months or even years before stock prices fully recover. Until then, there is always the chance that prices could drop further and your investments could lose value.
So, as a general rule, it’s best to avoid investing money you may need for years to come.
Market downturns are not always easy to tolerate, but they won’t last forever. By keeping your focus on the long term and investing carefully, your investments have a much better chance of surviving any potential market volatility.
10 Stocks We Like Better Than Walmart
When our award-winning team of analysts has investment advice, it’s worth listening to. After all, the newsletter they have published for over a decade, Motley Fool Stock Advisorhas tripled the market.*
They just revealed what they think are the top ten stocks for investors to buy right now…and Walmart wasn’t one of them! That’s right, they think these 10 stocks are even better buys.
Stock Advisor returns as of 02/14/21
The Motley Fool has a disclosure policy.