It's no secret that many investors are having a rough time right now. Experts are predicting that a recession may be coming in 2023, the Federal Reserve raised interest rates for the 10th consecutive time, and several high-profile bank failures have rattled consumers.
Amid all this volatility, many investors are worried about how these events will affect the stock market and their investments. That's a normal concern, and even experienced investors have been feeling shaky lately.
In times like these, words from experts like Warren Buffett can be reassuring. While even he can't predict the future of the market, there's one phrase that can make periods of volatility easier to stomach: "Bad news is an investor's best friend."
Image source: The Motley Fool.
Why there's still reason to be optimistic
Every recession and bear market is different, but sometimes it's helpful to look back at history for guidance.
Back in 2008, when the stock market was bottoming out during the Great Recession, Warren Buffett wrote an opinion piece for The New York Times to help reassure worried Americans. In it, he explained that while things may look bleak, the market's long-term potential is still incredibly promising.
He went on to write that in most cases, historically, the best time to invest was when the economy and market were at their worst. "In short, bad news is an investor's best friend," he wrote. "It lets you buy a slice of America's future at a marked-down price."
It's often easier said than done, but consistently investing in the stock market -- even when it feels uncomfortable -- is one of the most effective ways to build wealth over time. When you buy during the market's low points, you can set yourself up for substantial gains during the inevitable recovery period.
A bull market is coming (perhaps sooner than you think)
In the article, Buffett also touched on the fact that the market is often forward-looking, meaning stock prices usually rise or fall before those fluctuations affect the economy. So, for example, if investors are worried that a recession is looming, the market will generally fall long before the recession actually starts.
But the same concept also works in reverse, and the market almost always begins to recover while the economy is still struggling. In fact, in every recession over the last 50 years (with the exception of the dot-com bubble burst in the early 2000s), the S&P 500 began a new bull market before the economy reached its lowest point, according to analysts at JPMorgan Chase.
As Buffett wrote in the Times piece:
I can't predict the short-term movements of the stock market. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
In other words, if you're looking to take full advantage of the next bull market, it's often best to invest at (seemingly) the worst possible time. If you wait until the economy starts to regain its strength, you may miss out on the early stages of the market's rebound.
Keeping your money safe
Even if, logically, it's the right move, investing in times like these can still be daunting. After all, investing more when a recession may be looming can often feel like you're throwing your money away.
But there are two keys to keeping your money safer: Maintain a long-term outlook, and invest in the right places.
As Buffett mentioned, nobody can predict the short-term performance of the market. But historically, it's managed to recover from every single recession and bear market. It's highly likely, then, that it will rebound from this one, too. By simply riding out the storm, your investments should bounce back, as well.
That said, your portfolio will have a much better chance of recovering if it's filled with strong stocks. Healthy companies with the potential for long-term growth are more likely to survive periods of volatility. The more research you put into choosing the right stocks, the better your chances are of pulling through a recession.
All of this uncertainty right now can be unnerving, and if you're feeling discouraged, you're not alone. But even the worst downturns are only temporary. By sticking it out for the long haul and continuing to invest, you can ensure you're doing everything possible to protect your savings.
