As stock prices tumble, it can be a nerve-wracking time to be an investor.
The S&P 500 has fallen by nearly 16% since the beginning of the year, inching its way toward bear market territory. Some experts believe the market will fall even further before it begins to recover, and watching your investments drop in value can be tough to stomach.
Is it really a safe time to be investing, then? Or should you consider pressing pause or even pulling your money out of the market? Here’s what you need to know.
Is the stock market safe right now?
Market downturns are daunting, even if you’re an experienced investor. Even more intimidating is the fact that nobody can say how long this downturn will last or how severe it will be. Even the experts can’t predict exactly what the market will do, and that uncertainty can be tough.
That said, the stock market is safer than it might seem. Investing is a long-term strategy, and though the market’s short-term performance is often unpredictable, it’s almost guaranteed to recover over the long run.
Throughout the market’s history, it’s faced dozens of corrections and crashes. In the past 20 years alone, it’s experienced everything from the dot-com bubble burst to the Great Recession to the pandemic-related crash in early 2020.
Although all those downturns were alarming in the moment, the market managed to recover and experience positive average returns over time.
No matter how bad this downturn gets, it’s extremely likely the market will eventually bounce back. And although it can be challenging, staying focused on the long term can make this short-term volatility easier to tolerate.
How to protect your money
Because downturns are temporary, one of the best ways to protect your investments is to keep your money in the market.
While this strategy may sound counterintuitive, keep in mind that you don’t technically lose any money unless you sell. Your portfolio may drop in value if stock prices fall, but when the market inevitably rebounds, your investments should bounce back as well — and you won’t have lost anything.
There are a couple of caveats to this approach, though. For one, make sure you have a solid emergency fund. Selling your stocks during a downturn could result in losing money. If you face an unexpected expense, an emergency fund can help you avoid tapping your investments.