The stock market recently experienced its worst day in months, and it has some investors on edge.
The S&P 500 fell by around 1.7% between Sept. 20 and Sept. 21, which is its worst single-day drop since May. The Nasdaq and the Dow Jones Industrial Average also fell by around 2% and 1.9%, respectively, during the same time period.
The September sell-off was prompted partially by concerns surrounding China's property market, and some investors are also worried about surging COVID-19 cases and the pandemic's effect on the economy. Historically, September also tends to be a rough month for the stock market, which could be exacerbating investors' concerns.
With stock prices falling, it may be tempting to unload your investments right now. But there are a few reasons why you may want to think twice before selling.
Is it time to sell your stocks?
Market volatility can be tough to stomach at times, especially when many investors are worried that a market crash is just around the corner. However, selling your investments when the market gets rocky can be a risky move for a couple of reasons.
For one, nobody knows exactly how the market will perform over the next few weeks or months. Just because prices dipped recently doesn't necessarily mean they'll continue falling. If you sell now and the market rebounds, you'll miss out on those earnings. Then if you reinvest later once prices have increased, you may end up paying more for your investments than what you sold them for.
Also, it can sometimes be a smart move to buy more when the market is in a slump. When stock prices fall, you have the chance to invest in quality companies for a fraction of the price.
Of course, you should only invest more if you can afford to do so. But if you can swing it, market dips can make it easier to build a stronger portfolio without breaking the bank.
How to help your investments survive volatility
One of the most worrisome aspects of market downturns is that nobody knows exactly how bad they'll be or how long they'll last. When prices start to fall, it can be nerve-wracking to watch your portfolio plummet in value without knowing when or if it will recover.
The good news is that the stock market as a whole has a 100% recovery rate when it comes to previous downturns. And by investing in the right places, you can give your portfolio the best chance of surviving volatility, as well.
The best investments are the ones that perform well over the long term. The companies behind these stocks are healthy organizations with strong business practices and leadership teams. Even if these stocks take a hit during periods of volatility, they're more likely to bounce back once the market stabilizes.
While nobody knows whether a market crash is on the horizon or not, you can prepare by double-checking that every stock in your portfolio is a solid investment. By investing in companies with strong underlying fundamentals and holding those stocks for the long term, there's a good chance your portfolio will not only survive, but thrive over time -- regardless of what the market does.