Stock prices have been sliding, and major indexes recently reached new lows for the year. The S&P 500 (SNPINDEX: ^GSPC) is down by nearly 6% from its peak, as of this writing, with the Nasdaq Composite (NASDAQINDEX: ^IXIC) falling by around 9% after recently entering correction territory.
This doesn’t constitute a market crash, and the U.S. is not in a recession right now. But if the economy worsens and stock prices fall further, three investing moves can help protect your portfolio.
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It can be tempting to sell off your investments when stock prices are in freefall. After all, if the market continues this downward slide, there’s a good chance your portfolio might lose even more value.
The challenge in selling your stocks right now, though, is that nobody knows what the market will do in the coming months. If you sell after prices have already sunk but then the market quickly rebounds, you may end up selling at a loss and missing out on future gains.
It’s not unheard of for the market to unexpectedly rebound. At the beginning of the COVID-19 pandemic, the S&P 500 lost roughly one-third of its value in less than a month. Almost immediately, though, it bounced back and went on to set new record highs.
Again, we don’t know for certain whether the market will experience a similar recovery this time around, and there’s always a chance stock prices will sink deeper. But that uncertainty is what makes it risky to sell your investments now.
Fortunately, with a long-term outlook, it doesn’t matter as much what the market does in the near term. Even if prices have much further to fall, it’s incredibly likely that major indexes will be setting new records in the next decade or so.
The average S&P 500 bear market since 1929 has only lasted around nine months, according to analysis from Bespoke Investment Group. Meanwhile, the average bull market lasted close to three years. While recessions and bear markets are tough to stomach, the good times have historically outweighed the bad.
In the last two decades alone, we’ve experienced historic volatility. Yet if you’d invested in an S&P 500 index fund in January 2000 and held it through all the rough patches, you’d have earned total returns of around 625% by today.
