According to a recent survey by the American Association of Individual Investors, over half of U.S. investors are feeling somewhat negative about the market’s future. This figure has risen to 51%, up from 46% last week and a mere 35% just two weeks prior.
There’s growing worry among Americans regarding potential market volatility. So, it’s probably a good idea for investors to understand the implications of a market crash or recession on their investments. Of course, there’s a blend of good news and not-so-great news for those who are putting their money in the market.
No one can predict what the market will do in the near future. Yet, history suggests that during bearish phases or economic downturns, investments typically see a decline in value.
Sometimes, this drop can be quite significant. Take the Great Recession as an example, where the S&P 500 lost over half its value between 2007 and 2009.
To put it into perspective, if you had invested $10,000 in an S&P 500 ETF back in December 2007, it would have been worth around $4,600 by March 2009.
But here’s the silver lining: losing value doesn’t equate to actually losing money. The only time you incur a loss in the stock market is when you sell your investments for less than your purchase price.
In the previous scenario, if you bought that S&P 500 ETF for $10,000 and sold it for $4,600, yes, that would mean a loss exceeding $5,000. However, if you just held onto your investment until the market bounced back, you wouldn’t have lost anything in the long run and could regain your value.
In reality, if you’d kept your $10,000 investment in that S&P 500 ETF for a decade, you could have more than doubled your money.
The key takeaway with stock market investing is that maintaining a long-term perspective is invaluable. No matter how challenging the short-term situation might feel, the odds are heavily in favor of positive returns over spans of 10 to 20 years.
The market has a remarkable record of recovering from downturns, yet that doesn’t guarantee that every individual stock will do the same. If you’re backing companies that aren’t robust enough to handle volatility, there’s a solid chance you could lose money during downturns.
Indeed, stock prices do not always reflect a company’s strength. During market booms, fundamentals often take a back seat, which can lead to even weak companies showing growth.
It’s crucial to focus on companies with solid financial health and competitive advantages. While there may be short-term fluctuations in value, holding onto these stocks for a few years can significantly increase your chances of weathering severe market crashes or recessions.
Before diving into investments within the S&P 500 index, consider this: there are analysts who have pinpointed a handful of stocks they believe are better options right now. In fact, these 10 selections might outperform the S&P 500 over the next few years.
For example, recommendations from years ago have seen remarkable returns, with some stocks turning a $1,000 investment into jaw-dropping amounts. Totaling nearly 900% return, the recommended stocks distinctly outperformed the S&P 500.
It’s a good idea to keep an eye on such prospects for potentially securing better returns in your investment portfolio.
