It’s a harrowing time to be an investor right now, as the stock market continues to fall. The S&P 500 is down more than 10% in the last month, while technology nasdaq it has fallen nearly 15% in that time period.
Recessions like these can be overwhelming no matter how long you’ve been investing, and it can be tempting to stop investing altogether or even withdraw your money from the market. But is that the right move for you? This is what you need to know.
Is the stock market going to crash?
When stock prices fall, it’s normal to wonder if we’re headed for a crash. And while some investors may make predictions about where the market is headed, no one can say for sure what will happen.
Even experts cannot predict with 100% accuracy how the market will behave. Case in point: In the early stages of the COVID-19 pandemic, many experts believed that we would experience a prolonged bear market. In reality, however, after a brief dip, the market went on to see two of the best years in its history.
The stock market is unpredictable and no one can say how it will behave in the coming weeks. While there could be a potential drop, there is also a chance that prices will rebound.
Should you take your money out of the market?
In theory, it might seem like a good idea to get your money out of the stock market right now. Then, if you reinvest later, when stock prices are at their lowest, you could make a big profit when the market recovers.
However, this tactic involves timing the market and is extremely difficult to pull off successfully. Because the market is unpredictable, no one knows whether share prices will continue to fall or recover quickly.
If you sell your shares now, there’s a chance that prices will rally immediately afterward and you’ll lose those potential gains.
Also, because prices have already started to fall, selling now could result in a loss of money. If you bought your shares when prices were higher, you may end up selling them for less than you paid for them.
How to protect your money
If taking your money out of the market is a risky move, what should you do instead? The answer is simpler than you think: do nothing.
While it may seem counterintuitive, simply holding onto your investments and waiting it out is often the best way to survive periods of volatility without losing money.
During market downturns, your portfolio could lose value in the short term. However, you don’t really lose anything unless you sell. By holding on to your investments until stock prices eventually recover, you can weather the storm without losing anything.
When you keep a long-term perspective, recessions and market crashes aren’t nearly as intimidating. Even the most severe drops are only temporary and the market will recover over time. By keeping your focus on the future and sticking with your investments despite volatility, you can ensure that you’re doing everything you can to keep your money safe.