The stock market closed out the previous week on a low note, with both the S&P 500 and Nasdaq nose-diving to kick off September -- a month that's historically been the worst-performing one for stocks. And while tech stocks spurred this downward momentum, last week's sell-off hit stocks broadly, making investors understandably nervous.
The last time there was a major sell-off, stocks plunged quickly into bear market territory as the coronavirus pandemic took hold and battered the U.S. economy in a very meaningful way. It's too soon to know whether the past week's sell-off will continue or whether it will ultimately constitute more of a blip, but if stock values do dip further, you should make sure to do one of the following two things.
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1. Buy more stocks
Declining stock values present opportunities. If there's a particular stock you've had your eye on but haven't pulled the trigger because its price has been too high for your appetite or budget, now may be the time to go in and snag it at a discount. Similarly, if you've been looking to invest but aren't sure where to start, now could be a good time to buy index funds.
Index funds won't help you beat the market. To do that, you'll need to invest in actively managed mutual funds or assemble a portfolio of hand-picked stocks on your own. But index funds will allow you to capitalize on broad market gains, and if you don't have the time to research individual stocks, they're a good bet.
2. Sit tight and do nothing
The best way to lose money during a market sell-off is to jump on the bandwagon and sell stocks yourself. If you're not planning to add to your portfolio, then your best bet is to simply sit back and leave it alone. Even if the stock market is headed for a rocky September, or a prolonged slump that lasts the rest of the year, if you simply leave your portfolio as it is, you won't lose any money.
Remember: Things seemed pretty dire back in March when the stock market took its most extreme tumble in roughly a decade, but by August, the S&P 500 had already erased all of its losses from earlier in the year. That's a pretty impressive feat given the ongoing recession. As such, don't let panic drive you to make rash investing decisions you ultimately end up regretting.
At this stage of the game, many of us want nothing more than to see the end of 2020 and start anew in 2021. But like it or not, we still have another four months of this volatile year to endure, and from a stock market perspective, we may be in for our wildest ride yet. Make a plan for your portfolio that involves either adding to it while stocks are down, or leaving it intact, and stick to that plan to avoid unnecessary losses that make 2020 even more miserable than it needs to be.
