The stock market has crashed recently, as prices continue to fall. The S&P 500 is down more than 16% since the beginning of the year, and the nasdaq It officially entered bear market territory after falling almost 25% in that same time frame.
If you have money tied up in the stock market, it can be disconcerting to watch your portfolio sink day after day. But how long could it be before share prices begin to recover? There is no simple answer to that question, but there are a few things to keep in mind.
1. The stock market is unpredictable
No one knows for sure how the stock market will behave in the coming weeks. Some experts predict that it could be months before the market begins to recover, and until then, share prices could continue to fall.
That said, it’s impossible to know exactly what will happen. Past performance is not necessarily indicative of future results, and this recession may not work like previous recessions. That means even the experts can’t predict with 100% certainty how long this recession will last.
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2. A long-term perspective is key
While no one can say exactly what will happen to the market in the short term, there is more certainty when it comes to its long-term performance. The stock market has experienced dozens of corrections and crashes over the years. In fact, the S&P 500 has dropped at least 20% on 21 separate occasions since 1929. That’s a significant drop about every 4.5 years, on average.
In other words, depressions like these are normal. However, the most important thing is that they are temporary. While there are never any guarantees when it comes to investing, there is a good chance the market will bounce back from this downturn as well.
Although it is not clear how long this recession will last, keeping a long-term perspective may make it more tolerable for investors. No matter how bad things look, they will eventually get better.
3. Recessions are not all bad
To be clear, stock market crashes are hard to stomach and it’s completely normal to feel worried about your investments. However, there is an advantage: investing is much more affordable.
When the market is going downhill, stock prices are lower. That means it can be a smart opportunity to accumulate quality investments at a fraction of the price. If the price of a particular stock is down, say, 25%, instead of thinking of it as losing 25% of its value, think of it as having a 25% discount.
Because market downturns are temporary, most stocks will see their prices rally. By investing now when these investments are essentially liquidating, you’ll reap the rewards when the market inevitably recovers.
While it can be nerve-racking to throw more money into the market when prices are plummeting, keep in mind that even famed investor Warren Buffett isn’t afraid of recessions because they are opportunities to buy at a discount. As he says: “Opportunities come infrequently. When it rains gold, snuff out the bucket, not the thimble.”
The stock market has had a rough year and no one knows for sure how long it will be before prices begin to recover. By keeping your focus on the long term and trying not to get too hung up on day-to-day moves, this volatility will be easier to tolerate.
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