This year hasn't been easy for investors. Stock prices have been sliding throughout 2022, and it can be discouraging to see your portfolio drop in value.
Because it's been so long since the last major market downturn (aside from the brief crash in 2020), this is the first bear market many newer investors have experienced. While that can make it a daunting time to invest, there is a silver lining: Right now is one of the best buying opportunities of the decade. Here's why.
The stock market isn't all bad news
Market downturns can be intimidating, and it's often tempting to press pause on investing until stock prices recover. But they can also be a fantastic time to buy, and right now may be a once-in-a-decade investing opportunity.
The market has had an incredible bull run since the end of the Great Recession, with stock prices soaring. While that's a positive for your portfolio, it's also been a very expensive time to buy.
Right now, though, stock prices are down across the board. Some stocks -- particularly in the tech sector -- have been hit especially hard, with prices lower than they've been in years.
In other words, if you've been looking for a more affordable time to invest, now may be your best chance. If you buy before the market recovers, you can snag high-quality stocks for their lowest prices of the decade.
Buy now, reap the rewards later
Not only can you invest at a discount now while prices are down, but when the market eventually rebounds, you may see significant earnings. For example, the price of Amazon (AMZN -1.64%) stock is currently down nearly 54% from its peak.
The last time it saw this type of drop was in 2008, when it fell around 60%, due to recession fears. However, if you had invested in Amazon in 2008, you'd have seen gains of around 935% over the following five years. By today, you'd have earned returns of nearly 5,000% (and that's despite the significant drop Amazon has experienced so far this year).
While nobody knows for certain whether Amazon will see similar post-recession gains after this downturn, strong companies like this are the most likely to rebound.
There are also many other companies in a similar situation as Amazon, as their stock prices experience 2008-level drops. That may not seem like good news on the surface, but it's a fantastic buying opportunity.
Before you invest, though, there are a couple of important things to consider:
- Be sure you're willing to keep your money in the market: Nobody knows how long this downturn will last, and things could get worse before they get better. Before you buy, be sure you're only investing money you can afford to leave in the market for at least the next few years.
- Keep a long-term outlook: Again, there's a chance this bear market hasn't bottomed out yet, so stock prices could potentially fall further. If you invest now, try to avoid getting caught up in these short-term movements, and stay focused on your investments' long-term potential.
- Do your research before you buy: Not all stocks will survive a bear market or recession. By only investing in quality companies with solid fundamentals, you can give your investments the best chance at seeing long-term gains.
One of the best ways to build wealth in the stock market is to invest during the market's low points, then hold those investments until it recovers. Right now is one of those low points, which means it's one of your best chances to see significant returns down the road.
