The stock market has always experienced its fair share of ups and downs, but this year has been a doozy. Earlier this year, the Dow Jones Industrial Average experienced its worst first quarter in history. This week, it closed out its best quarter in more than 20 years.
This market rally may be unexpected, but some say it's going to grind to a halt soon. With a surge in new cases of COVID-19, some Americans are worried about a second wave of the pandemic slamming the country -- which could trigger another market crash.
Nobody knows for certain what the stock market may do. But regardless of what may happen, there are a few reasons why you shouldn't worry about it.
1. You can't time the market
Worrying about the stock market could mean letting your emotions cloud your judgment. It's human nature to want to take action if you're worried about a market crash, especially if your life savings are invested in the stock market. However, timing the market is next to impossible -- even for the experts -- and you could get yourself into trouble if you try.
The stock market is unpredictable and can experience wild swings at the drop of a hat. Nobody can anticipate exactly when a rally will begin or when the market will take a turn for the worse, and trying to buy or sell at just the right time can be dangerous. Sell off your stocks too early, and you could miss out on significant gains. But wait too long to sell, and you could lock in losses by selling after stock prices have already dropped.
Because it's incredibly difficult to time the market, it's typically best to simply ride out the storm and not worry about what the market is doing right now.
2. Investing is playing the long game
One of the best ways to build wealth is to invest for the long term, not the short term. You could potentially make a lot of money by investing in the hottest new stocks that you're betting will perform well in the short term, but if you bet wrong, you could lose a lot of money.
When you invest for the long term, it doesn't matter what your investments do right now. Your stocks may lose value if the market crashes, but keep in mind that you don't technically lose any money unless you sell your investments. If you don't plan to sell anytime soon, then you won't need to worry about the current state of the stock market.
If you really want to build wealth, you can use a market downturn as an opportunity to invest more. Market downturns equal lower stock prices, which means the stock market is essentially on sale. In other words, you can stock up on quality investments at a fraction of the price you'd pay when the market is booming. Then when the market bounces back, those investments you bought on sale will skyrocket in value.
3. The market always rebounds
It's natural to worry about your investments when the stock market is volatile, but historically, the market has always rebounded from every crash it's experienced. So no matter what happens now, things will get better. And if you're investing for the long term, you don't need to worry about what happens in the next few weeks, months, or even years.
It may take time for the market to recover fully, but it will get there eventually. As long as you're patient and are diversifying your portfolio properly, you'll see your investments bounce back as well.
The stock market is in the middle of a wild rollercoaster ride, and nobody knows which direction it will turn next. But as long as you've built a well-diversified portfolio and are investing for the long term, the current state of the market shouldn't be keeping you up at night.