The stock market has been tumbling in recent days, leaving many investors feeling panicked about their portfolios.
The Nasdaq (NASDAQINDEX: ^IXIC) is officially in correction territory after falling by more than 11% since mid-July, while the S&P 500 (SNPINDEX: ^GSPC) and Dow Jones (DJINDICES: ^DJI) have dropped by roughly 7% and 4%, respectively, in that time. With prices falling more by the day, it’s normal to feel worried about where the market is headed.
In times like these, your strategy is key. Even seemingly small mistakes can cost you big time during periods of volatility, but there’s one simple move that can protect your investments: Do nothing.
The power of nothing
When the market is flailing and investors are panicking, it’s human nature to want to do something to protect your savings. After all, when the market itself is out of your control, it can be tempting to try to manage factors within your control.
Most of the time, though, the single best thing you can do is wait it out — no matter what volatility may be looming.
The market is incredibly unpredictable in the short term, and even the experts can’t say how long this downturn will last or how far stock prices will fall. If you sell your investments now and the market immediately rebounds, you’ll miss out on those gains. Also, if you invest again after the market has surged, you’ll end up paying higher prices for the same stocks you just sold.
Timing the market is essentially a guessing game, and if you guess wrong, it could be costly. For example, say that you decided to sell your stocks on March 9, 2020 — roughly one week after the market began crashing amid fears of the COVID-19 pandemic.
At the time, it may have seemed like you’d protected yourself against some major losses. The S&P 500 had already fallen by more than 18% since it began its descent on Feb. 20, but it still had much further to fall before it would bottom out at the end of March.
However, by the end of the year, the S&P 500 had surged by nearly 37% since March. The tech-heavy Nasdaq fared even better, soaring by more than 62% in that time. By selling your investments, you’d have likely missed out on some serious gains.
Of course, no two downturns are alike, so it’s impossible to say whether the market will perform in a similar way now. There’s always a chance this slump will last much longer. Again, though, if you put your investments on the line and guess wrong, it could cost you thousands.
A safer approach
Rather than getting caught up in what the market will do today, tomorrow, or even next week, a safer approach is to focus on how it will be performing in the coming years and decades.
The market has proven to be incredibly resilient, even after it’s been beaten down time and time again by history’s most brutal bear markets, crashes, and recessions. It’s recovered from every single downturn so far, and there’s no reason to believe it won’t continue this streak with enough time.
The best thing you can right now? Keep your money in the market and simply wait for the inevitable recovery. If prices continue to drop, your portfolio may lose value in the short term. But if you ride out the storm and hold your investments, you’ll likely see significant gains once the market bounces back.
It’s been a rough few days for many investors, but this volatility — like all market turbulence — is only temporary. By investing in long-term stocks and staying in the market through good times and bad, you’ll reap the rewards during the recovery phase.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of August 6, 2024
Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Stock Market Sell-Off: This Is the Single Best Investing Move You Can Make Right Now was originally published by The Motley Fool