The stock market has not been kind to investors this year. Since the beginning of January 2022, the S&P 500 – perhaps the most often cited market “index” – is down roughly 20% as of late October. It’s been down further, too, and may drop even more. We simply don’t know!
But the fact remains: If you have money in the stock market, you’re probably in the red right now.
For many investors, this can be scary. It can also be a sign that perhaps it’s time to stop putting your money in the market. If the market continues to decline, you’ll only lose money, right? Well, not necessarily. You only “lose” money if you sell your investments for a lower price than you paid for them. And considering that every market downturn in history has ended with a market upturn, it’s really a matter of waiting things out.
In other words, if you simply hold on, chances are, the market will turn around and you’ll see a positive return. It’s all about playing the long game! With that in mind, here’s why you should keep investing, even if the market is on a slide.
Why you should keep investing through a downturn
The primary reason you should keep investing through a market downturn is to take advantage of something called dollar-cost averaging. What this means is that you’re investing small amounts of money at regular intervals, and buying investments at different prices. Over time, it doesn’t matter all that much how much you paid for those investments, because it will all average out.
So, if you had poured a lot of money into your portfolio over the past couple of years, you would’ve effectively paid high prices for investments during part of 2020 and much of 2021. But now, you can buy those same investments for much cheaper – in the end, it’ll all average out, and you should come out ahead!
As such, the best time to invest is….always!
Further, if the market does fall and it starts to freak you out, you should do your best to remain calm. When the market falls, you can think of it as a clearance on stocks, and stock up!
Things to keep in mind about the stock market
A critical thing to keep in mind about the stock market is that it tends to operate on a cycle. The market goes up, and it comes down. Repeatedly.
The important thing to remember about this, though, is that over time, the market has gone up throughout those various cycles. So, when it goes up and comes down, it tends to hit a trough at a higher point than the previous trough. That means that investing for the long term is a smart bet – not guaranteed, of course, but smart.
Further, most of the news and media covering the market is fairly overblown. The market may drop 2% one day, and headlines will make it seem like the world is caving in. But for most investors who are invested for the long term, it won’t mean a thing. In fact, the market may very well go back up 3% the following day!
Remember that nobody knows what’s going to happen next, and the best thing you can do is stick to your financial plan and strategy.
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