If you're worried about the stock market, you're not alone. Stock prices fell sharply in recent days, with the S&P 500 dropping roughly 4% and the Nasdaq falling more than 6% between May 5 and May 7.
While it's normal to feel concerned about the most recent wave of volatility, there's no need to panic. Regardless of what the future holds for the market, there are a few reasons you don't have to worry about it.
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1. Market downturns are temporary
The stock market will always experience short-term ups and downs, and that is completely normal. Stock prices can't continue increasing forever, so eventually, there will need to be some sort of downturn.
Nobody can predict exactly when those downturns will happen or how severe they will be, but we do know that they won't last forever. The market has a decades-long history of recovering from even the worst crashes. Even if there is another crash looming, it's almost guaranteed the market will rebound eventually.
Again, nobody can say for certain how long downturns will last. In some cases, it can take months or even years for the market to recover fully. But the good news is that if the market does take a turn for the worse, it's extremely likely it will bounce back.
2. You don't lose any money unless you sell
If you have a lot of savings tied up in your investments, market downturns can make it feel like you're losing a large chunk of money. Keep in mind, though, that even if your investments take a hit, you don't actually lose anything unless you sell your stocks.
Your investments could lose value during a downturn. If stock prices fall, your portfolio may be worth less than it is right now. But when the market inevitably rebounds, prices will increase again. As long as all your stocks survive the downturn, you'll be right back where you started without losing anything.
The key to surviving a market slump, then, is to simply hold your investments. If you sell your stocks after prices have fallen, you may end up locking in your losses. But if you sit tight and wait it out, there's a good chance you'll come out the other side unscathed.
3. The right investments are most likely to pull through
The majority of stocks will be able to bounce back after periods of volatility. When an organization has strong underlying fundamentals, it's more likely to see long-term growth. Factors like healthy financials, a competent leadership team, and a competitive advantage give these companies a leg up during market downturns.
Unhealthy companies, though, are riskier investments. If an organization is not in a great place financially or if its leadership team has made less-than-stellar decisions in the past, for example, it may have a harder time recovering from a crash.
The right investments, then, can make or break your strategy. When you fill your portfolio with solid long-term stocks, you have a much higher chance of surviving market volatility.
Market downturns can be alarming for even the most experienced investors, but they are normal. By taking the right steps to prepare and maintaining a long-term outlook, you can rest easier at night knowing your money is as safe as possible.
