Stock Market Correction: Should You Really Be Investing Right Now?

The S&P 500 officially entered correction territory recently — which means it’s fallen by more than 10% since its peak in early January. There are many factors behind this recent sell-off, including the Federal Reserve’s plan to raise interest rates, rising inflation, surging COVID-19 infections, and general economic uncertainty among investors.

This type of volatility can be daunting, especially if stock prices continue falling. It’s normal to be concerned about your investments during periods of turbulence, and it may also be tempting to stop investing altogether until the market stabilizes.

However, pressing pause on investing can be more dangerous than it sounds. Here’s why it pays to keep your money in the market — even if stock prices keep dropping.

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The risks of pulling your money out of the market

Regardless of whether you’re new to the stock market or have been investing for years, it’s unnerving to watch your portfolio lose value. It can be tempting, then, to withdraw your money before prices can drop any further.

When you pull your money out of the market, though, you risk locking in your losses. If you purchased your stocks when prices were higher and you sell after prices have dropped, you may end up selling your investments for less than you paid for them.

If you simply hold your investments, though, you don’t technically lose any money. Your stocks may lose value in the short term, but you won’t lose any money unless you sell. Once prices rebound, your investments will increase in value once again without losing a dime.

Help your savings grow by investing during volatility

Even if you do keep your money in the market, it’s easy to stop investing altogether when prices start to drop. After all, why would you continue buying when there’s a chance your investments could immediately lose value?

However, downturns can actually be the best time to buy. Stock prices, in general, are lower now than they were a few weeks ago. This makes right now the perfect opportunity to stock up on quality investments for a fraction of the price.

Also, investing during downturns allows you to take advantage of dollar-cost averaging. With this strategy, you’ll invest a set amount of money at regular intervals throughout the year. Sometimes, you’ll end up buying when prices are at their highest. Other times, you’ll invest when prices are lower.

Over time, these highs and lows will average out. If you were to only invest when the market is on the up and up, you may end up spending significantly more in the long run than if you’d also invested during downturns.

Things to consider before you buy

Although it’s smart to continue investing consistently even when the market is down, there are a few things to consider.

First, make sure you can afford to invest. It’s best to avoid investing any money you may need in the foreseeable future. Nobody knows for certain how long this downturn will last, and if you need that money in a few months, prices could have fallen further by then. If you withdraw, you may end up locking in your losses.

In addition, double-check that you’re investing in strong stocks. The investments you choose can make or break your portfolio, and the stocks that have the healthiest underlying fundamentals are the most likely to survive volatility.

With the right stocks in your portfolio, it’s extremely likely your investments will recover from a downturn. By continuing to invest and holding your stocks for the long term, you can make the most of a downturn and come out the other side even stronger.

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