It’s been almost a year since the market experienced one of its largest downturns in history. Who didn’t feel some panic when it looked like a third of their net-worth just vanished into thin air?
If you believe another crash is approaching, you are right. The market has gone through 38 corrections since 1950. But here are 5 reasons you should stop worrying right now.
1. Invest when the panic sets in.
If you would have invested $10,000 into the S&P 500 on March 23 of last year, when the index reached the bottom, you would have over $17,500 right now. While you can’t pinpoint the exact moment stocks will hit the bottom, the point is, a crash can be a huge opportunity to buy if you’re prepared for it.
Rather than being riddled with anxiety about a crash, write down a list of stocks you want to buy during the next downturn. They should be stocks you would already want to own even if the market does not go down. The next crash is just an opportunity to accumulate these stocks at a very low price.
2. Not selling means temporary losses.
To avoid seeing your wealth vanish during a crash: Don’t sell your investments. Give them room to recover, and the losses you’ve seen will largely be regained eventually. Sure, some companies might not survive a large bear market. But instead of worrying about the crash, give your portfolio a look over and sell anything that does not have long term potential.
3. Bad days mean the best days are coming.
If stocks take a big downturn, chances are high that some profitable days are soon to happen. For example, between 2000, and April 2020, seven of the market’s 10 top performing days were within two weeks of its worst days.
Plenty of experts predicted last year that the market might take years to regain its lost territory. But instead, the S&P 500 index took only 126 days to recover after its March bottom. The market’s best day of last year was March 24, when it gained 9.38%.
That does not mean the next recovery will be as fast. But a crash does not guarantee your investments will be negative for years.
4. Dividend stocks to the rescue.
Even if shares are falling, your returns won’t always be zero or negative or zero. Dividend stocks can give you returns, even while a crash is happening. Dividends are never guaranteed. But some companies have enlarged their dividends for over 50 years. While others have a 25-year record of dividend increases. Find these companies and even during long downturns — you can get some peace of mind.
5. The market always recovers.
History says you should not lose sleep over a crash: Your chances of making money from the S&P 500 are 73% in a single year. And over five years, your chances increase to 87%. And after 10 years, your odds reach 94%. Plus, S&P 500 profits over a 20-year time have always been positive.
Recoveries are not always fast. But just like you can expect the market to crash eventually, you can also count on it to regain its lost territory again.