Should You Keep Investing If the Stock Market Crashes?

The stock market has experienced some intense ups and downs over the last couple of months. After dropping 13% from its peak in early January, the S&P 500 has nearly recovered from those losses in the last two weeks.

Still, though, some investors worry that between the war in Ukraine, high inflation, continued supply chain issues, and other macroeconomic factors, more volatility could be on the horizon.

To be clear, nobody can accurately predict exactly how the market will perform. A crash may or may not be looming. But if stock prices do take a steep tumble, should you keep investing while they’re dropping? And what can you can do to protect your money along the way?

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Keep investing even amid downturns

When the stock market is shaky, it can be tempting to sell stocks to take risk off the table, or to stop investing altogether. However, in most cases, it’s wise to continue investing as you would at any other time.

The market is unpredictable. If you let fear lead you to pull your money out and then share prices surge, you’ll miss out on those gains. And if you reinvest later once prices are higher, you’re liable to end up paying more to get back into those stocks than you previously sold them for.

While it may sound counterintuitive, it’s actually safer to keep your money in the market during periods of volatility. While your portfolio may take a hit in the short term, the U.S. market as a whole has a long track record of recovering from crashes. If you stay invested in a diverse array of stocks, you should be able to simply ride out the storm and wait for the market to bounce back.

It can also be wise to buy more shares during downturns. When stock prices drop broadly, this creates opportunities to load up on high-quality stocks at discounted prices. Then once the market inevitably rebounds, your portfolio will reap the rewards.

How to keep your money safe

Continuing to invest during market downturns can be smart, but there are a few other strategies to consider that will help you keep your money as safe as possible.

First, only invest money you won’t need to use in the near future. While the U.S. market is extremely likely to bounce back from any given crash, it could take months or even years for it to fully recover and start touching new highs. If you have a well-stocked emergency fund that is not invested in equities, even if the unexpected occurs, you should be able to leave your stocks alone. That will allow you to avoid situations where you’re compelled by circumstance to sell investments when their values are low.

Also, given the level of concern about a possible looming downturn, now would be a good time to review your investments and check that each stock you own still deserves its spot in your portfolio. The companies that are most likely to survive a market crash are the ones with strong underlying business fundamentals. When a company itself is healthy, its stock has a better chance of performing well over the long haul, despite periods of volatility.

Crashes can be unnerving for even the most experienced investors, but there are steps you can take to protect your money. By continuing to invest and choosing the right stocks, your portfolio is more likely to thrive in the long term — regardless of what happens with the market in the short term.

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