This Is the Biggest Investing Mistake You Could Make During a Stock Market Crash

The S&P 500 (SNPINDEX: ^GSPC) has been plunging in recent weeks, officially closing out last week in a crash after falling by more than 10% in a single day after President Trump announced sweeping new tariffs.

Recession fears are also increasing, with J.P. Morgan predicting a 60% chance of a recession by the end of the year. Analysts at Goldman Sachs have also raised their recession probability to 45%, their second increase in a week and up from their estimate of 20% to 35% in late March.

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If you're worried about the stock market continuing to sink, you're not alone. But no matter how far the market falls, the right strategy can help you avoid losing money.

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Selling right now could cost you big time

When the market is in a free fall, one of the most tempting things to do is panic-sell your investments and pull your money out. While avoiding the market may seem safer on the surface, this strategy could cost you thousands of dollars.

Your portfolio has likely lost significant value lately, as most investors have watched their account balances plummet. But there's an important difference between losing value and losing money. Regardless of how much stocks plunge, you won't lose any money unless you withdraw from the market.

^SPX data by YCharts

For example, say you invested in one share of stock for $100. Then the market tanks, and your stock's price drops to just $60 per share. If you sell at that moment, you'll have lost $40. However, the market is almost guaranteed to rebound eventually. If you simply hold onto your stock until its price bounces back to $100 per share, you'll have lost nothing.

Now, nobody knows how long this slump might last or how severe it may become. But even the worst downturns are only temporary, with the average S&P 500 bear market lasting for around nine months, historically. Even the longest bear markets have lasted for less than two years.

There are no guarantees that this downturn will be similar to those in the past. However, the market has seen some nasty recessions and crashes even in just the last couple of decades, and it's still managed to see positive total returns over time.

The key to ensuring your investments survive

While these downturns are not easy to stomach, holding your investments through the rough patches is one of the best ways to avoid losing money. It's just as important, though, to invest in the right places.

If a company is on shaky ground, it may have a harder time recovering from a recession or bear market. Businesses that are not in great shape financially or that lack a competitive advantage, for example, could suffer more during a downturn. In the worst-case scenario, they may not survive at all. The healthier the company, though, the better its chances of pulling through even the worst downturns.

For that reason, now is a great time to double-check that all the companies you own have solid fundamentals and are prepared for tough times. If you find any weak points in your portfolio, now could be the time to sell.

A smart opportunity to build long-term wealth

If you can swing it, it could be wise to invest more now while prices are lower. You may not see positive returns on your investments for a while, but by "buying the dip," you can set yourself up for more lucrative gains when the market recovers.

In fact, this is one of Warren Buffett's most common pieces of advice. "A simple rule dictates my buying," he wrote in a 2008 article for The New York Times. "Be fearful when others are greedy, and be greedy when others are fearful."

Right now, it's normal to be fearful about the future of the market. But by keeping a long-term outlook, avoiding panic-selling, and maybe taking this chance to invest at a steep discount, you can make the most of whatever the future might hold.

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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.