With the S&P500 officially in a bear market, this can be a discouraging time to invest. Stock prices have continued to fall over the past few weeks, and investing right now might feel like putting your money at risk.
However, the stock market is safer than you might think, even in downturns. While there are several reasons why you don’t need to worry about the future of the market, there are also a few situations in which it may be best to avoid investing at this time.
Keeping your money safe during volatility
If there’s one thing to know about the stock market, it’s that every crash and bear market eventually gave way to a bull market. In other words, not only has the market recovered from all previous downturns, but it has also seen positive average returns over time.
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No one can say for sure how long this bear market will last or whether stock prices will fall further before they recover. However, it is extremely likely that the market will perform well in the long term.
Because investing is a long-term strategy, there really is no bad time to invest. In fact, bear markets can actually be fantastic investment opportunities because prices are lower. If you buy now and hold onto your investments for the rest of this downturn, you could see substantial returns when the market inevitably recovers.
In addition to maintaining a long-term vision, a diversified portfolio can further protect your savings. When you own at least 25-30 stocks across multiple sectors, your investments have a much better chance of surviving volatility.
Even if one or two of your stocks are hit hard or fail to recover from a decline, your portfolio as a whole should be doing well.
When you might want to avoid the stock market
Although it is generally safe to invest at all times (even during bear markets), there are a few situations where it could be risky.
When investing, it’s best to keep your money in the market for at least several years, if not decades. If you invest now but realize later that you need the money, the stock price may have fallen further since you invested. In this case, you may have no choice but to sell your investments at a discount to lock in (and minimize) those losses.
For that reason, if you don’t have emergency savings, if you’re having trouble paying bills, or if you have reason to think you might need that money in a year or two, it’s worth maybe best to avoid investing for now.
Once you have a solid reserve of savings and are sure you can keep your money invested for the long term, this is the perfect opportunity to start building wealth in the stock market.
Market downturns can be tough to handle, but they’re not as daunting as they seem. By investing what you can afford and keeping your money in the market for the long term, you can earn more than you think over time.
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