It's been a difficult year for investors, and many are concerned that the worst is yet to come.
To be clear, nobody knows for certain what's on the horizon, though some experts are predicting a recession in 2023. Fortunately, there is a silver lining for investors, and it's still possible to make money in the stock market during a downturn. Here's how.
1. Keep a long-term outlook
Even the best investors in the world can't predict how the market will perform over the following weeks or months. But historically, the market has not only recovered from every single recession, it's also gone on to see positive average returns over time.
While it's easier said than done, try to avoid getting caught up in the market's daily fluctuations. Panicking over the short-term ups and downs is more likely to lead to impulse decisions, which could be costly.
Rather, stay focused on the market's long-term potential. A bull market is coming sooner or later, and by keeping your eyes on the prize, you'll be ready to take advantage of the upswing.
2. Focus on fundamentals over stock prices
The key to successful investing is choosing the right stocks. But when stock prices are plummeting, it can be tough to tell the difference between strong and weak investments.
Now more than ever, it's crucial to look at a company's underlying business fundamentals when deciding what to buy.
Not all companies are strong enough to survive a recession. But the organizations with solid financials, a competent leadership team, and a strong competitive advantage are most likely to recover from an economic downturn.
Sometimes even the strongest companies see their stock price take a nosedive. While that can be unnerving, try not to focus too heavily on price. Instead, look into the company's fundamentals to decide whether it's a strong investment.
3. Don't wait for the upswing to buy
If we are headed toward a recession, it can be tempting to press pause on investing until the market starts to improve. But if you wait too long, you'll miss out on an incredible buying opportunity.
While it may not seem like it, right now is one of the best times to invest. Many high-quality stocks are priced at a steep discount, making it your chance to load up on solid investments for a fraction of the cost.
By investing during the market's low points, you'll be well positioned to take advantage of the higher returns once stock prices recover.
For example, if you bought Amazon stock in 2009 -- when it was at its lowest point during the Great Recession -- you would have seen returns of more than 500% over the next five years alone.
In other words, if you had invested $1,000 in Amazon stock in 2009, you would have had more than $6,500 in just five years. The more you invest during the slumps, the more you can potentially earn when the market rebounds.
It's not as challenging as it may seem to make money in the stock market, even during a recession. By keeping a long-term outlook, choosing the right stocks, and investing during the market's low points, you'll be well prepared for the upcoming bull market.
