This past year has been a rollercoaster for a variety of reasons, but the stock market has had a phenomenal run recently. Since the market bottomed out in March 2020, the S&P 500 is up by around 114%.
Some experts warn, however, that all this growth has resulted in an overvalued market. This means the stock market may be due for a correction at some point. In addition, concerns surrounding the new COVID-19 omicron variant could lead to greater volatility, strengthening the case for a downturn.
The market is still on the rise at the moment, but it's uncertain how long this upward trajectory will last. Does that mean a market crash is inevitable? Here's what you need to know.
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Just how likely is a market crash?
First and foremost, it's important to note that nobody -- even the experts -- can predict exactly how the market will perform. The stock market is unpredictable, and with countless variables affecting its performance every day, it's impossible to know for certain when or if a crash will happen.
That said, there is a good chance that the market will take a turn for the worse eventually. Stock prices can't continue climbing forever, and sooner or later the market will have to experience some type of downturn. When that will happen or how severe it will be, however, is anyone's guess.
There are several factors that could also affect the likelihood of a downturn. The omicron variant, for instance, has been spreading rapidly across the U.S. in recent weeks, causing the number of COVID-19 cases to skyrocket. Just how much of an effect the variant could have on the stock market is uncertain, but it could potentially lead to more volatility.
In addition, there are concerns surrounding ongoing supply chain issues and the labor shortage that could also affect the market. Again, whether these factors could lead to a crash is unknown, but these types of widespread economic issues are more likely to cause turbulence.
How to protect your money against a market crash
The good news is that regardless of whether a crash is looming or not, there are steps you can take to keep your investments as safe as possible.
Most importantly, stay focused on the long term and try to avoid getting caught up in the market's day-to-day movements. The market will always experience short-term volatility, even in strong economic times. Over the long run, though, it has historically earned positive average returns.
By holding your investments for the long term, you're more likely to see positive returns, on average, over time. Your portfolio may take a hit in the short term if the market crashes, but because the stock market has a strong track record of bouncing back from volatility, your investments will likely recover as well.
The key, then, is to make sure you're investing in solid long-term stocks. Not all stocks can survive a market crash, but companies with strong underlying business fundamentals are more likely to pull through even the most severe downturns.
When you invest in strong companies and hold those stocks for the long term, your portfolio is far more likely to survive a market crash. While nobody knows when or if a crash is coming, by taking steps now to prepare, you can rest easier knowing your investments will be safe.
