15 Reasons Not to Worry About a Stock Market Crash in 2022

From the household names on Wall Street to retail investors huddling on online forums, signals in the market show that there's no shortage of fear of an impending crash. As investors, we've been watching the market slip in and out of steep corrections in recent months, wondering if or when these movements might signal an imminent and durable turn into bear territory.

Here's the thing: No one knows for sure. In the words of Peter Lynch, "I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it."

Whether a crash is weeks, months, or longer down the line, here are 15 reasons why you shouldn't lose sleep over the next one.

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Whether or not another dip or surge skyward lies around the corner is anyone's guess. Trying to figure out when these events will happen is next to impossible, and you could lose a lot of money in the process of doing so, particularly when the market has entered a bear period.

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The events of past markets can be a worthy teacher, but just because the stocks you own hit a certain low point comparable to historical trends doesn't mean they can't go lower. Conversely, just because the market or your holdings seem to be heading in a downward direction doesn't mean they can't (or won't) swiftly rebound.

Rather than expending time and energy trying to estimate what direction your portfolio will move next, continue to focus on the stocks that you own, regularly review what you own and what the companies are doing, and ensure that your basket of stocks are balanced according to your current tolerance for risk.

If you're regularly checking in on the companies you own, you should know whether the thesis that informed the purchase of a stock or stocks still holds true. If not, it may be time to reassess and see whether your portfolio could use some trimming, which can produce cash to add to your winners, buy other stocks on your radar for which you have a stronger long-term conviction, or hold onto for a later date.

It's true, the current state of the market could significant worsen before it improves. It could just as easily improve without worsening further. In any case, your advantage as a retail investor in down markets is to seize the opportunity to invest in great businesses if you have the capital on hand. You can also leverage your advantage by simply staying put, holding onto quality businesses that you own, and holding off on making changes to your portfolio.

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There's no doubt that a market crash can provide a great opportunity to invest in companies whose valuations have significantly retreated. That being said, a cheap stock doesn't make a great stock. On the other hand, a stock that's trading at a particularly high valuation relative to the broader market may have a solid underlying business behind it -- or it may have gotten caught up in a wave of investor hype that will die down and leave blistering losses in the wake of its downfall.

Bottom line -- share price alone should never dictate whether you buy or sell a stock. Just because other investors are scooping up or dumping shares of a business shouldn't be the sole determinant of an investing decision you make. Investing opportunities aren't dictated by share price movement alone, but should take into account the overall fundamentals of the business, balance sheet, competitive advantage, leadership, and core thesis for durable growth.

While fear or panic might be a natural inclination when your portfolio is consistently in the red over a prolonged period, one reason to avoid giving into these emotions is the simple reality that they will not only often steer you off course but could lead you to make core changes to your portfolio that you regret later. Panic can drive you to sell stocks just as easily as it can induce you to buy them.

Staying the course as a long-term investor doesn't mean holding on to fundamentally bad businesses no matter what. What it does mean is making sure your mindset is in the right place so that when you do make decisions that impact the health of your portfolio, you ensure they're tied to a durable underlying thesis.

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From inflation to rapid interest rate hikes to war in Europe, the factors impacting the current market are varied and multifaceted. There's nothing you as an individual investor can do to control these factors. Your edge lies in your ability to tune out the noise, and if you can, consistently add great companies with strong leadership to your portfolio in both up and down markets.

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If you're low on cash, your emergency fund isn't where it ought to be, and/or you don't have a solid nest egg, now is the time to be focusing on building those areas up. You shouldn't be taking cash you need now or soon to invest in your portfolio, full stop.

That said, if you have the spare cash to invest that you won't be touching for a number of years, distributing that cash across a variety of stocks in different kinds of sectors -- and with different types of growth profiles -- can help you build a more robust portfolio that is better primed to deal with the pitfalls of market volatility.

If you know your portfolio inside and out, and the thesis holds true for the stocks that you own, a market crash shouldn't cause you to panic. Instead, you might see it as an opportunity to sit back and leave your portfolio alone, or to add to more of your favorite stocks.

In short, you shouldn't be buying stocks that you don't know well, nor should you invest in a business and never look at it again. From keeping track of company updates to earnings calls to leadership changes, check in on your thesis for the stocks you own now and again to ensure your portfolio contains the adequate balance for your personal investing goals.

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While a market crash can be a great time to buy stocks at lower prices, that doesn't mean you have to. Whether you're low on liquidity, struggling with personal emotions in a bear market (which is perfectly natural), or another hurdle, one of the most prudent steps to take during this period is often to wait and do nothing.

This is one of my favorite facts about the stock market. While it has entered its fair share of corrections and bear markets, it has never once not recovered from one. The duration of these market recoveries has varied -- anywhere from weeks to months to years -- but recover it has.

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Certain industries and sectors tend to provide a certain level of recession resiliency, and this often ties back to our daily habits as individuals and as consumers. For example, even in a period of declining consumer spending, sectors like consumer staples, healthcare, and financial services can still experience growth because these are made up of companies making indispensable products and services needed regardless of changes in the macro environment.

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If you decide to sell a stock you own solely because shares are down (without a strong reason tied to the business itself), who's to say when the right moment to buy back in will present itself? By the time it does, you might have missed it, and the compulsion to wait until the "perfect" moment to buy back in may keep you from buying in at all, missing out on returns you would have otherwise realized if you'd stayed the course.

There's no need to complicate your portfolio strategy with intricate investing methods and perceived buying or selling signals as forecast by a turbulent market. Invest in quality businesses that you understand and believe in. Hold onto them for a period of three to five years at minimum. Build up a portfolio of 25 to 30 stocks or more. Regularly check the stocks you own to see what parts in your portfolio, if any, need rebalancing. And if you can, invest consistently in bear markets, bull markets, and everywhere in between.

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While shares of stocks in more volatile sectors may still experience notable downward pressure in the short term, companies with a solid balance sheet, consistent cash flows, strong business models, and compelling management can come through on the other side of a recession and bounce back again.

Depending on your job and lifestyle, you may have more or less time to read up on and study different businesses and industries. Among a variety of factors, this may inform the types of businesses you buy and the risk level of the companies you own. Whether you prefer value stocks, growth stocks, dividend stocks, fund investing, or a combination of strategies, ensuring that you thoroughly learn about an investment and continue to stay up to date with it after you buy in can provide considerable peace of mind about the state of your holdings if the market takes a temporary turn for the worst.

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You're not alone if a potential market crash fills you with unease -- let's face it, no investor is going to jump for joy at the thought.

Here's the bottom line: The reward for being a long-term investor is durable, compounded gains in your portfolio over time produced by winning businesses. The trade-off is that you will undoubtedly experience a number of corrections or crashes in your investing journey.

But a market crash, when approached with a long-term investing mindset and a prudent buy-and-hold philosophy, doesn't have to be your enemy. It can be a golden opportunity.

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