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1 Reason to Fear the Stock Market, and 3 Reasons Not To

By Katie Brockman - Aug 7, 2021 at 5:30AM

Key Points

  • Investing in the stock market can be risky, so it requires the right strategy.
  • But it's not as dangerous as it may seem.
  • With the right approach, you can protect your money and start generating wealth.

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The stock market can be a scary place, but there are plenty of advantages to investing, too.

The stock market can be daunting, especially if you're a new investor. It's unpredictable, and there's always a chance that a crash could be right around the corner.

While the market can be intimidating, it's not as scary as it may seem. The right investment strategy is important, because the wrong approach could be costly. But there are also several reasons why you shouldn't worry about investing in stocks.

Young person sitting at a desk looking at a laptop

Image source: Getty Images.

The biggest reason to fear the market: You could lose a lot

Losing money is the biggest fear when investing. Whether you're worried that a market crash will wipe out your savings or a bad investment will cost you a lot, there are legitimate reasons to be cautious.

So it's wise to invest only if you can afford to. If you're struggling to pay bills or don't have any savings set aside in an emergency fund, you might be better off tackling those goals before you invest in the stock market.

It's also best to avoid dangerous tactics, like day trading, trying to time the market, or buying high-risk investments like penny stocks. While some people can make a lot of money with these strategies, the risk often outweighs the reward.

The good news, though, is that the stock market is safer than it might seem, and there are relatively simple ways to avoid losing money.

Why you shouldn't worry about investing

1. The market is very likely to recover from crashes

Market crashes can be sudden and severe, and it's true that your investments can lose value. But the market has a long track record of recovering from crashes.

In the past 20 years alone, it has experienced multiple severe crashes, including the dot-com bubble, the Great Recession, and the crash in the early stages of the pandemic -- as well as countless other corrections over the years. Despite everything, though, the S&P 500 is still up more than 200% since 2000.

^SPX Chart

^SPX data by YCharts.

The key to surviving market volatility is to avoid selling your investments. Strong stocks will generally bounce back after market crashes, and no matter how low prices drop, you don't lose any money unless you sell. By holding your investments, you'll avoid losing money and will reap the rewards once the market rebounds.

2. Choosing the right investments doesn't have to be complicated

Picking stocks can be daunting, especially when you have seemingly unlimited options to choose from. And the wrong stocks could sink your portfolio. However, finding the right investments doesn't have to be difficult, even if you're a brand-new investor.

One great option is an S&P 500 ETF. These funds include all the stocks within the S&P 500 index, or around 500 from the largest companies in the country. The S&P 500 is one of the best representations of the market as a whole, and because the market has historically always recovered from downturns, S&P 500 ETFs are almost guaranteed to recover as well.

The best part is that you don't need to pick any stocks or keep up with how the market is performing on a day-to-day basis. These investments will experience short-term volatility, but over the long run, they're very likely to earn positive average returns.

3. Investing is one of the best ways to generate wealth

Despite its near-constant volatility, the stock market remains one of the most effective ways to build wealth over a lifetime. Even if you can't afford to invest much, you could potentially earn hundreds of thousands of dollars or more by investing.

For example, say you can afford to invest $100 per month in the market, and you earn an average return of 8% per year after averaging out the highs and lows over time.

After 35 years, you'd have accumulated around $207,000. If you were able to continue investing for an additional five years, you'd have around $311,000, all other factors remaining the same.

The stock market has always experienced its fair share of ups and downs, and it's normal to feel nervous about investing. But as long as you're strategic about where you invest, the advantages far outweigh the risks.

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