The stock market is known for its volatility, and that can be intimidating – especially when you are investing your life savings in your investments. While S&P 500 has had a phenomenal year since the market bottomed out last spring, stock market crashes are inevitable. This upward trend can’t last forever, and some experts believe that another crash is just around the corner.
What should you do with your investments if a market downturn emerges? Is It Better To Get Your Money Out Of The Market Right Now? Here’s what you need to know.
The timing of the market is tough
On the surface, the best way to weather a market crash is to pull your money out of the market just before prices fall and then reinvest when prices are lowest. This is known as the timing of the market, and while it may seem like a smart strategy, it is more difficult than it looks.
The stock market is unpredictable, and even the experts don’t know exactly when the market is going to crash or how long it will take to recover. Case in point: in the early stages of the COVID-19 pandemic, the S&P 500 lost about a third of its value in a matter of weeks. While the crash itself was unprecedented, its almost instant recovery and continued growth during the pandemic was even more surprising.
No one can predict when the market will collapse, and selling your assets at the wrong time can be a costly mistake. If stock prices keep rising after the sale, you are missing out on that growth. Or, if you wait too long to sell, you can sell your investments for less than you paid for them, which includes your losses.
What should you do to protect your money?
While it may seem counter-intuitive, one of the best ways to protect your money from stock market crashes is to do nothing. By keeping your investments simple, you can weather the storm and make your money bounce on your own.
The key is to make sure that you are investing your money in solid investments. It doesn’t matter if you invest in Single shares, Investment funds, or ETFs – If investments have strong fundamentals and a healthy track record, they are more likely to survive market crashes.
This does not mean that your investments will not experience volatility. When the market collapses, your investments are likely to fall too. However, solid investments are more likely to recover when the market stabilizes again.
Also, remember that, technically, you won’t lose any money on your investments until you sell. Even if your portfolio depreciates in a market crash, you won’t lose money as long as you hold your investments until the market recovers. However, if you pull your money out of the market it can result in losses.
When it comes to market crashes, the good news is that they are normal and temporary. The market has seen dozens of downturns and corrections over the years and has always managed to recover. If you stay invested for the long term, there is a very good chance your investments will recover as well.