The Dow Jones Industrial Average officially entered a bear market recently, dropping by just over 20% since early January. This is its first time falling into bear territory since early 2020, sparking concerns that a recession could be on the horizon.
If you're feeling nervous about investing right now, you're not alone. Millions of investors' portfolios are plummeting in value, and it can be nerve-wracking to watch your savings dwindle.
However, there is a silver lining. While nobody knows exactly how the market will fare over the coming months, history tells us one important thing about bear markets: They consistently lead to bull markets. And there's one strategy that can help you make money, regardless of what happens in the near term.
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Will the market recover from this downturn?
One of the most daunting aspects of a bear market is that nobody -- even the experts -- can predict exactly how long it will last or how severe it might be. But the good news is that it will eventually give way to a bull market.
Historically, the market has seen its fair share of bear markets. In fact, since 1928, the S&P 500 has fallen by at least 20% on 21 separate occasions -- not including the current downturn. On average, that's a bear market every 4.5 years.
While that's not exactly reassuring, the bright side is that the market has recovered from every single one of those downturns. Although there are no guarantees in investing, it's extremely likely the market will rebound from this slump, as well.
How to make money in the stock market -- even during a slump
It's not always easy to invest when the market is volatile. But historically, there's an almost guaranteed way to make money in the stock market: Hold your investments for the long term.
In the short term, your portfolio could lose value. But losing value is not the same as losing money. You'll lose money if you sell your investments after stock prices have fallen because you'll be selling your stocks for less than you paid for them.
But if you simply hold your investments until the market inevitably rebounds, your portfolio should bounce back and you won't have lost anything.
Not only can this strategy help you avoid losing money, but it can also improve your chances of earning more over time. Again, the market has seen some serious downturns in the past. Despite everything, though, it's earned positive average returns over time.
If you had invested in an S&P 500 tracking index in 2000, for example, you would have seen returns of more than 152% today -- despite enduring the dot-com bubble burst, the Great Recession, the crash in the early stages of the COVID-19 pandemic, and the current bear market.
Keeping your investments safe
Time is your most valuable resource when it comes to protecting your investments. Trying to time the market or selling your stocks during a downturn can be risky, and there's a chance you could lose more than you gain. But if you simply hold your investments for at least a few years (or ideally, decades), you're far more likely to earn positive average returns.
It's not an easy time to invest right now, but investors shouldn't be afraid of the stock market. Patience pays off, and by staying calm and keeping your money in the market, you can earn more than you might think over time.
