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This year, the stock market has not been performing well. In fact, we’re officially in a bear market that’s probably not going to end anytime soon.
Whenever the market goes down, I do just one thing differently with my investing. Here’s what it is.
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This is how a downturn changes my investment strategy
When stock prices have fallen — and especially if it seems like they’re going to decline further — the only change I make to my investment account is to increase the amount I’m investing. It may seem counterintuitive to put more money into the stock market when things are going poorly, compared to when prices are rising. But I’d rather buy at a lower price than a higher one so I can make more of a profit. And a market downturn is an ideal time to do that.
Prices can continue to decline for a while, and I may temporarily lose some money on paper by investing more during a bear market. But I can’t time my investments perfectly to only purchase stock when prices hit rock bottom since I don’t know when that will happen.
I’d rather buy when bargains are available, even if the price temporarily drops before it starts recovering. In the long run, I know the prices I’m paying now for shares of the S&P 500 are much lower than they’ll be in a few years time. I’m able to buy more shares for my money at today’s low price. As a result, the profits I’ll enjoy on the investments I make during this time will be greater.
By increasing the amount I’m investing and buying consistently during this time, chances are good I’ll end up buying some shares at the very lowest point before a recovery begins.
Here’s what I don’t do
While I like to invest more during a downturn, that’s the only change I’ll make to my portfolio. I won’t alter my investment strategy because I’m confident in my decision to mostly buy shares of a stock index that tracks the performance of 500 of the largest U.S. companies.
The S&P 500 has provided very consistent returns for decades, and since I don’t like selecting individual stocks, I’ve decided that this is the right choice for me. The fact that we’re in a bear market doesn’t change that calculation.
I also won’t sell any investments, including the limited number of shares I have in individual companies. I don’t want to sell any stocks because if I do, I’ll lock in any losses that have occurred during this downturn when chances are good that I would have recovered my money had I waited for the market to turn around.
If I had made short-term investments that I wasn’t confident in, I might do something differently. But I don’t believe that’s a smart way to invest. I know that steadily investing over the long haul is a proven path to success, and I’m going to follow that approach by keeping my current assets while putting extra cash into the market to pick up more shares at a bargain.
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