The past couple of weeks have been a roller coaster of ups and downs for the stock market, and many investors are feeling nauseated by all the volatility.
After ending the first week of April in a crash because of uncertainty surrounding President Trump’s tariff policy, the S&P 500 (SNPINDEX: ^GSPC) experienced a historic rally — only to fall yet again the following day.
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Recent volatility aside, the S&P 500 is still down close to 13% since mid-February, as of this writing. That alone is causing many investors concern about a potential recession. If you’re worried about how potential future volatility may affect your portfolio, there are three important things to keep in mind right now.
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1. You won’t lose money until you sell
When stock prices sink, your portfolio could lose significant value. While it’s certainly concerning to watch your account balance dwindle, it’s important to note that you’re not actually losing money as long as you stay in the market.
Stock prices fluctuate every day, and sometimes those dips are severe. But when it comes to how much you gain or lose, all that really matters is how much you paid for your investments and what you sell them for. The only way to lose money, then, is to sell after prices dip below what you paid.
For example, say you buy one share of stock for $500. If that stock jumps to $600 per share, you’ll have increased your portfolio’s value by $100. But you won’t actually cash in on those gains unless you sell at that price.
The same principle works in reverse. If your stock falls to $400 per share and you sell, you’ll have locked in a $100 loss. But as long as you hold your investment until its price eventually rebounds back to $500 or more per share, you won’t have lost anything — even if the path getting there was rocky.
2. Time is your best friend
The key to ensuring your investments rebound? Give them plenty of time. There are no guarantees in the stock market, but strong companies are likely to recover from even the worst crashes and recessions.
Historically, the market itself has a flawless track record of surviving periods of volatility. While we are in unchartered waters in many ways right now, this is not the first time the market has experienced unprecedented times.
For example, the Great Recession was the most severe financial crisis post-World War II, and many Americans were uncertain about the future of big banks and Wall Street itself. But the market still recovered. Fears surrounding the COVID-19 pandemic led to the S&P 500 losing more than a third of its value in less than a month, but the market recovered in that instance, too.
In fact, not only has the market recovered, but since the S&P 500’s lowest point in March 2009, the index has gone on to earn total returns of close to 700%.
Of course, this doesn’t necessarily mean we will see similar returns over the coming decades, as past performance doesn’t predict future earnings. However, it is proof that the market is capable of surviving tough times.
While those rough patches can be tough to stomach, simply waiting it out and staying in the market is the key to maximizing your gains during the eventual rebound. Just be sure you’re investing in healthy stocks with the potential for long-term growth, as strong companies are the most likely to recover from downturns.
3. There’s never necessarily a bad time to invest
When stock prices are falling, it may not seem like a wise time to invest. But market downturns can be fantastic buying opportunities, as stocks are essentially on sale.
That said, it’s also not necessarily a bad thing to invest while prices are higher — as long as you can keep a long-term outlook. Over decades, the market is likely to see substantial returns. Even if you bought at record-high prices, there’s still plenty of room for growth.
For example, say you had invested in an S&P 500 index fund in November 2007, immediately before the market began its descent into the Great Recession.
The following couple of years would have been rough. Your portfolio would have almost instantly lost value, and the S&P 500 would not see a new high until 2013. But if you’d simply held onto your investment for 10 years, you’d have earned total returns of more than 70% — close to doubling your money.
Now, could you have earned more if you’d invested right when the market bottomed out in 2009? Of course. But that doesn’t mean you can’t still see significant gains while buying at less-than-ideal times.
This is also a good reason to consider investing regularly, no matter what the market is doing. With dollar-cost averaging, you’ll invest a set amount consistently throughout the year. Sometimes you’ll buy when prices are high, while other times you’ll invest during the lows. With this approach, you’re more likely to maximize your earnings without having to perfectly time the market.
The future of the market may be uncertain right now, but that doesn’t necessarily mean you should avoid investing. If you’re still on the fence, here’s some advice from legendary investor Warren Buffet.
“I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month or a year from now,” he wrote in a 2008 New York Times article “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.”
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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.