Stock Market Decline: 1 Effortless Way To Avoid Losing Money | personal finance

(Katee Brockman)

When the stock market takes a turn for the worse, it can be nerve-wracking to invest. Your portfolio has likely lost value, and it may be tempting to get your money out of the market before stock prices drop further.

If you’re worried about losing money during this market downturn, you’re not alone. But there’s a simple and effective way to protect your savings, whether or not this depression gets worse: Keep your money in the market.

Why selling your investments can be risky

During a market downturn, stock prices are lower. In some cases, certain stocks can drop 20%, 30%, 40% or more when the market is in a downturn.

If you withdraw your money from the market now, then you will be selling your investments at a discount. That will lock in your losses, and depending on how much you paid for your stock in the first place, you could lose hundreds or even thousands of dollars.

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Also, if you sell now, you will likely need to reinvest your money at some point down the road. But because the market is unpredictable in the short term, it can be difficult to know when to buy again.

For example, consider the market crash in March 2020, in the early stages of the COVID-19 pandemic. When stock prices crashed, many investors believed we were headed for a prolonged bear market. In reality, however, the market recovered almost immediately, setting records for the next two years.

If he had taken his money out of the market when it crashed, he would not only have blocked his losses by selling at a discount, but he would also have had to reinvest when prices were much higher. Ultimately, that would have cost him much more than if he had simply kept his investments.

A safer (and easier) option

While it may sound counterintuitive, one of the most effective ways to protect your money against market volatility is to do nothing. Don’t sell your investments and don’t worry about trying to time the market. Just keep up your actions and weather the storm.

The reason this strategy works is that you don’t technically lose any money unless you sell. Your wallet could lose worthbut losing value is different from losing money.

When stock prices fall, your investments are not worth as much. But the market will inevitably recover, and when that happens, stock prices will rise once again and your portfolio will regain the value it lost.

For example, let’s say you bought a stock at $200 per share, but its price has now dropped to $150 per share. If you sell now, you will have lost $50. But if you simply hold onto your investment and wait for the market to recover, your price will likely recover to $200 a share, and you’ll be right back where you started, without losing a dime.

The key to successful investing

The best way to ensure your portfolio survives a market downturn is to invest in the right places.

Not all stocks will be able to recover from a downturn, but strong companies are the safest investments. While even the strongest stocks are likely to see their prices drop during a downturn, they have a much better chance of bouncing back when the market recovers.

No one knows for sure how long this recession will last, but that doesn’t mean you can’t prepare. By double-checking that you’re investing in solid stocks, and then keeping those investments for the long-term, you can keep your money as safe as possible.

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