The market is falling, but the situation isn’t as alarming as it may seem.
It’s been a rough couple of weeks for the stock market, as major indexes began plummeting in early August. As of this writing, the S&P 500 has fallen by around 5% over the past month. The tech-focused Nasdaq has been hit even harder, down by more than 10% in that time and officially falling into correction territory.
If you’re feeling pessimistic about the market right now, you’re not alone. More than 37% of U.S. investors believe stocks will be trending downward over the next six months, according to a weekly survey from the American Association of Individual Investors. That’s up from 25% from the survey released the week prior.
But is the market really headed toward a more significant downturn? Or will things start to look up soon? Here’s what you need to know right now — as well as whether or not you should be worried.
Image source: Getty Images.
The good and bad news about the market right now
Unfortunately, it’s impossible to accurately predict where stock prices will be in the coming weeks and months. The market’s short-term future is always unpredictable, so stocks could rebound quickly, or we might enter the next bear market.
That’s not exactly reassuring for most investors, but there’s good news, too: The market’s long-term potential is outstanding.
Perhaps the single best move you can make for your portfolio right now is to maintain a long-term outlook. Periods of volatility can be scary, especially when the near future is uncertain. But the market has a flawless track record of recovering from previous downturns.
In fact, over the last 30 years, the market has faced some of the worst downturns in history — ranging from the dot-com bubble burst to the Great Recession to the COVID-19 crash and countless smaller corrections along the way. Yet it’s still up by more than 1,000% in that time.
^SPX data by YCharts
This doesn’t necessarily mean you need to hold your investments for 30 years to see positive returns. In general, though, the longer you stay in the market, the less likely you are to lose money.
If you were to invest in an S&P 500 index fund and hold it for just one year, there’s a 27% chance you’d see negative total returns, according to historical data calculated by investment firm Capital Group. On the other hand, if you’d held your investment for 10 years, there’s only a 6% chance of seeing negative total returns.
Market slumps are daunting, but they’re not cause for major concern. By sticking it out and keeping your money invested for the long haul, you’re far less likely to lose money.
One critical move to make right now
When you’re maintaining a long-term outlook, you won’t need to worry as much about what’s happening with the market right now. However, you’ll need to ensure you’re investing in quality stocks with the potential for consistent growth.
The healthier your portfolio, the better your chances of surviving any potential volatility that could be looming. Strong companies with healthy fundamentals may still be affected by a bear market or crash, but they’re far more likely to pull through and experience positive long-term returns.
Right now, then, is the perfect time to examine your portfolio and double-check that all of your stocks are strong choices. If the market still has further to fall, now could be a smart time to sell any less-than-stellar investments while prices are still higher. And if prices do continue to drop, it can be a fantastic time to load up on more strong stocks for a discount.
It’s unclear where the market is headed right now, but it’s not as concerning as it might seem. By investing in the right places and keeping your focus on the future, you can better protect your portfolio no matter what’s on the horizon.