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The stock market has been sliding downhill lately, with the S&P 500 falling by more than 12% since the beginning of the year. The tech-heavy Nasdaq has experienced an even sharper drop, down more than 20% so far this year.
Whether you’re an experienced investor or are just getting your feet wet in the market, volatility can be difficult to endure.
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Part of the reason market downturns are so challenging is that there’s little we can control. Nobody knows how far stock prices will fall or how long it will take for them to rebound, and that uncertainty can be tough to stomach.
That said, there is one move you can make right now that could not only help your investments survive a market downturn, but also make volatility less intimidating: Keep a long-term outlook.
Investing is a long-term game
It’s easy to get caught up in the stock market’s day-to-day performance, and this is especially true during periods of volatility. However, it doesn’t necessarily matter what the market does over the course of days, weeks, or even months. What’s most important is its long-term performance.
The stock market will always experience short-term fluctuations. Some of those will be more severe than others, and occasionally there will be crashes and bear markets.
Over time, though, the market has consistently seen positive average returns despite all the short-term volatility. By focusing on these long-term returns, it can be easier to weather the occasional storms.
^SPX data by YCharts.
What does this mean for you?
When the market is shaky, it’s tough to resist the urge to do something to protect your investments. Most of the time, however, the best thing you can do is simply wait it out.
Pulling your money out of the market can be risky because nobody knows how the market will perform in the near term. If you sell your investments and the market surges, you could potentially miss out on significant gains. But if you wait too long to sell and the market has already dipped, you could be selling your stocks at a loss.
In most cases, then, your best bet is to hold your investments regardless of what the market does. Remember that you don’t technically lose any money unless you sell. So even if the market crashes, as long as you hold your stocks until it recovers, you can come out the other side without losing anything.
Will your stocks survive a downturn?
The key to maintaining a long-term outlook when investing is to ensure your portfolio is filled with solid stocks.
Not all companies will survive periods of volatility, but strong organizations with healthy underlying fundamentals are the most likely to pull through. The more of these stocks you have in your portfolio, the higher your chances of surviving a crash unscathed.
Keep in mind that even the strongest companies may still take a hit during market downturns. But when it inevitably recovers, these stocks are likely to bounce back as well.
Volatility can be nerve-racking for even the most experienced investors, but there are ways to protect yourself. By choosing the right investments and keeping your focus on the long term, you can rest easier at night knowing you’re doing everything possible to keep your money safe.
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