It's a nerve-wracking time to be an investor right now, as the stock market continues to slide. The S&P 500 is down more than 10% over the last month, while the tech-heavy Nasdaq has plunged nearly 15% in that timeframe.
Downturns like these can be daunting regardless of how long you've been investing, and it may be tempting to stop investing altogether or even pull your money out of the market. But is that the right move for you? Here's what you need to know.
Is the stock market going to crash?
When stock prices drop, it's normal to wonder whether we're heading toward a crash. And while some investors may make predictions about where the market is headed, nobody can say for certain what will happen.
Even the experts cannot predict with 100% accuracy how the market will perform. Case in point: In the early stages of the COVID-19 pandemic, many experts believed we would experience a prolonged bear market. In reality, though, after a brief crash, the market went on to see two of its best years in history.
The stock market is unpredictable, and nobody can say how it will perform in the coming weeks. While there could potentially be a crash, there's also a chance prices could rebound.
Should you pull your money out of the market?
In theory, it may seem like a smart idea to pull your money out of the stock market right now. Then if you reinvest later when stock prices are at their lowest, you could make a hefty profit when the market rebounds.
However, this tactic involves timing the market, and it's extremely difficult to pull off successfully. Because the market is unpredictable, nobody knows whether stock prices will continue falling or bounce back quickly.
If you sell your stocks now, there's a chance that prices will rebound immediately afterward, and you'll miss out on those potential earnings.
Also, because prices have already started to fall, selling now could result in losing money. If you bought your stocks when prices were higher, you may end up selling for less than you paid for them.
How to protect your money
If pulling your money out of the market is a risky move, what should you do instead? The answer is simpler than you might think: do nothing.
While it may sound counterintuitive, simply holding your investments and waiting it out is often the best way to survive periods of volatility without losing money.
During market downturns, your portfolio could lose value in the short term. However, you don't actually lose anything unless you sell. By holding your investments until stock prices eventually recover, you can ride out the storm without losing anything.
When you maintain a long-term outlook, market downturns and crashes aren't as intimidating. Even the most severe crashes are only temporary, and the market will recover eventually. By keeping your focus on the future and holding your investments despite volatility, you can ensure you're doing everything possible to keep your money safe.