It's been a challenging few weeks for investors. Cryptocurrency prices have plunged recently, and the Federal Reserve also announced it will be raising interest rates in an attempt to rein in surging inflation. Amid all this uncertainty, stock prices have also been falling.
The S&P 500 and the Nasdaq both finished their worst week since March 2020, and some investors are concerned that a crash could be looming.
When the market is shaky, it can be tempting to withdraw your money in an attempt to salvage your investments before prices drop even further. However, there's a better strategy that could help you avoid losing money during a market crash.
Will the stock market crash?
One of the most intimidating aspects of the stock market is its unpredictability. Nobody — even the experts — can accurately predict exactly what the market will do. Though stock prices have taken a tumble recently, nobody knows for certain whether a crash is on the horizon.
This unpredictability makes it nearly impossible to time the market, or sell your investments just before a crash. If you were to sell right now, for example, there's always a chance the market could rebound — and you'll miss out on that potential growth.
It's also possible to wait too long to pull your money out of the market. If you withdraw after prices drop, you may end up selling your investments for less than you paid for them, locking in your losses.
Although stock market volatility can be unnerving as an investor, the good news is that it doesn't necessarily matter what the market does. It may sound counterintuitive, but one of the best ways to handle volatility is to do nothing.
The easiest way to avoid losing money
One of the most important things to remember when investing in the stock market is that you don't lose any money unless you sell. Even if stock prices plummet, you haven't technically lost anything as long as you continue to hold your investments.
Eventually, the market will recover. The stock market has experienced dozens of crashes and corrections over the decades, and it's bounced back from every one of them. Sometimes it takes months or even years, but it will recover.
By holding your investments, you can simply ride out the storm and wait for prices to rebound. Again, you won't lose anything if you don't sell, and as long as your investments survive, your portfolio will bounce back.
The key, then, is to make sure you're investing in quality long-term stocks. The best investments are the ones with solid underlying fundamentals, as they're the most likely to survive market volatility. By filling your portfolio with stocks from strong, healthy companies, it's very likely your investments will survive even the worst market crash.
While nobody knows for certain what the future holds for the stock market, you can start preparing now. By double-checking that every stock you own is a solid long-term investment and being prepared to hold your stocks despite volatility, you'll be ready no matter what happens with the market.
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