The stock market has been in a slump recently, as prices continue to drop. The S&P 500 is down more than 16% since the beginning of the year, and the Nasdaq officially entered bear market territory after dropping nearly 25% in that same time frame.
If you have money tied up in the stock market, it can be unnerving to watch your portfolio sink day after day. But how long might it take before stock prices start to recover? There's no simple answer to that question, but there are a few things to keep in mind.
1. The stock market is unpredictable
Nobody knows for certain how the stock market will perform in the coming weeks. Some experts predict it could be months before the market begins to recover, and until then, stock prices could continue to sink.
That said, it's impossible to know exactly what will happen. Past performance isn't necessarily indicative of future results, and this downturn may not pan out like previous slumps. That means even the experts can't predict with 100% certainty how long this downturn will last.
2. A long-term outlook is key
While nobody can say exactly what will happen with the market in the near term, there's more certainty when it comes to its long-term performance. The stock market has experienced dozens of corrections and crashes over the years. In fact, the S&P 500 has dropped by at least 20% on 21 separate occasions since 1929. That's a significant downturn approximately every 4.5 years, on average.
In other words, slumps like these are normal. More importantly, though, they are temporary. While there are never any guarantees when it comes to investing, it's extremely likely the market will recover from this downturn, as well.
Although it's uncertain how long this downturn will last, keeping a long-term outlook can make it more tolerable for investors. No matter how bad things may look, they'll get better eventually.
3. Downturns aren't all bad
To be clear, stock market downturns are tough to stomach, and it's completely normal to feel worried about your investments. There is one upside though: Investing is far more affordable.
When the market is on a downhill slide, stock prices are lower. That means it can be a smart opportunity to load up on quality investments at a fraction of the price. If a particular stock's price has dropped by, say, 25%, rather than thinking of it as losing 25% of its value, think of it as being discounted at 25% off.
Because market downturns are temporary, the majority of stocks will see their prices rebound. By investing now when these investments are essentially on clearance, you'll reap the rewards when the market inevitably recovers.
While it can be nerve-wracking to throw more money into the market when prices are plummeting, keep in mind that even famed investor Warren Buffett doesn't fear downturns because they're opportunities to buy at a discount. As he puts it: "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble."
The stock market has had a rough year, and nobody knows for certain how long it will take before prices start to rebound. By keeping your focus on the long term and trying not to get too hung up on the day-to-day movements, this volatility will be easier to tolerate.