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Should You Invest When the Stock Market Crashes?

By Katie Brockman - Mar 11, 2021 at 8:30AM

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A market crash could be looming. Is now the time to buy?

Tech stocks have taken a sharp fall over the last few days, and many investors are worried a market crash is looming. On March 8, the Nasdaq had fallen more than 10% from its Feb. 12 high, which officially puts it in correction territory.

This is concerning to investors because the Nasdaq contains primarily tech stocks, and big tech has a significant influence on the market as a whole. If tech stocks fall, it could have a widespread impact on the stock market.

Stock market crash chart with bear in the background

Image source: Getty Images.

Nobody knows for sure whether a market crash is on the horizon or not. But if it does crash, should you continue to invest? Here's what you need to know.

What happens when the market crashes?

Market crashes are scary, but the good news is that they're normal. Volatility is inevitable, so it's only a matter of time before the market experiences another downturn.

In addition, the stock market has a strong track record of surviving crashes. Historically, it has recovered from each and every downturn it's ever experienced.

^SPX Chart

^SPX data by YCharts.

This means that if you ride out the storm during periods of volatility, it's very likely you'll make it through to the other side. 

Keep in mind, too, that you won't technically lose money during a market crash unless you sell your investments. Say, for example, you own 100 shares of a stock that you bought for $100 per share. Right now, your investment is worth $10,000. If the market crashes and the stock price falls to, say, $60 per share, your investment is now only worth $6,000.

By selling your shares at that moment, you'd lose $4,000. But if you wait until the market recovers and the stock price bounces back to $100 per share, your investments will once again be worth $10,000 and you haven't lost anything. 

Using a market crash to your advantage

A market crash isn't necessarily a good thing, and most investors aren't looking forward to seeing their portfolios plummet in value. However, there's a bright side to investing during market downturns: The market is on sale.

When the market crashes, stock prices fall, and you can load up on quality investments for a discount. If you've had your eye on a certain stock but couldn't afford the current share price, buying it during a market downturn when its price is lower could be a smart move.

"Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down." -- Warren Buffett

Even if you're not investing in individual stocks and are instead investing in index funds or contributing to your 401(k) or IRA, buying during a market downturn can still be beneficial.

When you're buying index funds or mutual funds, you're still buying stocks. Except instead of buying them one at a time, you're buying dozens or hundreds at once. So when stock prices fall, you're getting more for your money.

The key to investing during a downturn is to make sure you're putting your money behind solid investments. Don't buy stocks simply because they're cheap. Instead, buy quality stocks that are going through a rough patch. These investments are more likely to recover from a market crash.

Market crashes can be intimidating, but they can also be good investing opportunities. By investing in solid companies at bargain prices, you can make the most of periods of volatility and strengthen your portfolio.

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