It’s been a roller coaster year for the stock market. If you’re starting to feel whiplash because of the ups and downs, you’re not alone.
of S&P 500 It is officially in a bear market after dropping more than 20% from its peak in early January.of Nasdaq is firmly in bearish territory, Dow Jones Industrial Average I’ve been slipping around it for weeks.
It’s normal to be nervous about the stock market at a time like this. But history tells him one important thing about bear markets. A bear market is not as dangerous as it seems.
Good news about the bear market
One of the hardest parts of investing during market downturns is that no one (even the experts) knows how long it will last. Especially if your savings are tied to the stock market.
The good news, however, is that historically, all bear markets were eventually replaced by bull markets.
Since 1928, the S&P 500 has fallen 20% or more on 21 occasions (not including the current decline). On average, this is he bear market every 4.5 years. Yet, not only did it recover from all of these slumps, it also saw positive average returns over time.
^ SPX data from YCharts
In other words, the stock market has been through some pretty serious bear markets and recessions over the years, but it still hasn’t stopped growing. Then you have a very good chance of recovering from this recession as well.
How to make money in the stock market despite volatility
The best way to make money in the stock market is to invest consistently and hold your investments for the long term.
Investing during a bear market can be daunting, but it can actually be a profitable strategy. Investing in market lows can yield big returns when stock prices inevitably recover.
It’s also a great time to pick up quality stocks at a fraction of the price. By continuing to invest now, not only will you be rewarded when the market recovers, but you can also save a lot of money by investing at a significant discount.
To be clear, no one knows exactly how long it will take for the market to recover. Therefore, it is best to avoid investing in funds that you may need in the foreseeable future. But if you can afford to invest now, it can be a profitable move.
the key to keeping your money safe
One of the most important parts of investing during a recession is choosing the right stocks. Even the strongest companies can see their stock prices fall during market downturns, but as long as the underlying business fundamentals are solid, they are more likely to recover when the market recovers.
But weaker companies may struggle to recover. By doing your research and investing only in solid long-term stocks, your portfolio is much more likely to survive the worst recession.
When in doubt, you can choose to invest in S&P 500 tracking funds such as: Vanguard S&P 500 ETF (VOO -2.81%)Since the S&P 500 ETF contains the same stocks as the index itself and the S&P 500 is almost guaranteed to recover from a recession, this kind of investment will also recover.
Market downturns are not easily accepted and it is normal to be nervous about investing during periods of high volatility.
But now can be a great opportunity to create wealth. By investing in the right places and holding those investments for the long term, you can protect your savings and maximize your return at the same time.
Katie Brockman has a position in the Vanguard S&P 500 ETF. The Motley Fool owns positions in and recommends the Vanguard S&P 500 ETF. The Motley Fool’s U.S. headquarters has a disclosure policy.