The Nasdaq Has Fallen Nearly 10% as of the End of April. That's Its Second-Worst Start in 20 Years. What Should Investors Do?

The Nasdaq Composite (NASDAQINDEX: ^IXIC) has been rallying in recent days but the exchange is still off to a rough start to 2025. And given how volatile and unpredictable the market has been through the first four months of the year, investors may be hesitant to remain invested.

Year to date, entering trading on Tuesday, the Nasdaq was down more than 8% since the start of the year. But as of the end of April, it was down by 9.7% -- one of its worst starts in the past 20 years. Here's how the Nasdaq has historically done after such a poor start, and what investors should consider doing right now.

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The only worse start the Nasdaq has had in the past 20 years was in 2022

I looked at the Nasdaq's historical performance over the first four months of a year, and the only time in the past 20 years where it got off to a worse start (than this year) was in 2022. That year, the Nasdaq was down a staggering 21% by the end of April as the Federal Reserve was beginning to increase interest rates and inflation was a big concern for the economy. As a result, investors pulled money out of tech and growth stocks as a whole. The Nasdaq would end up finishing the year down more than 33%.

Prior to that, the last time the Nasdaq experienced more than a 10% drop in the first four months was in 2005. However, it proved to be just a temporary slowdown as it would end up in positive territory for the year, with a modest gain of just over 1%. Even amid the financial crisis, in 2008, the Nasdaq's decline during the first four months of the year was just over 9% -- not great, but still not as bad as this year's start.

What should investors do?

There isn't a whole lot of history to go off in the past 20 years to be able to confidently predict where the market will go this year. There also haven't been trade wars or tariffs to worry about in recent years, either. That makes this year particularly challenging, as it can be difficult to even guess what trajectory the market may go in.

In crafting a strategy, you should consider your overall situation and goals. Do you have a lot of investing years left (e.g., more than 10) and the ability to withstand short-term volatility, or are you more of a risk-averse investor?

If time isn't an issue and you're willing to be patient, then simply putting your money into an exchange-traded fund (ETF) that's focused on growth stocks can be the ideal approach. A good example here is the Invesco QQQ Trust (NASDAQ: QQQ). It gives you exposure to the top 100 non-financial stocks on the Nasdaq. It is down 5% this year but historically, this has been a great investment to hang on to. Over the past decade, it has soundly outperformed the Nasdaq and the S&P 500.

QQQ vs the S&P 500 and Nasdaq data by YCharts

The caveat is that the ETF can be volatile from one year to the next, which is why it may not be suitable if you don't have a lot of investing years left to go; it's ideal for long-term investors who can remain invested in the fund for several years. In the long run, the fund's focus on the Nasdaq's top stocks should position it for some solid returns.

If, however, you fall into that second category and are looking at a safer approach to stocks right now, a more suitable option may be to focus on companies involved with providing customers with day-to-day essentials, which can do well amid myriad economic conditions.

The Vanguard Consumer Staples Index Fund (NYSEMKT: VDC) is a good option in this case. It has risen by around 4% this year, providing investors with not only stability, but even modest gains. The ETF contains over 100 stocks, including resilient names such as Costco Wholesale, Procter & Gamble, and Walmart. With big names like this, you can be confident that your investment will be relatively safe when compared to the overall markets.

Adjusting your strategy, rather than panicking, is key

It can be challenging to invest in the stock market when there is so much uncertainty ahead, but exiting the markets and making decisions in a panic can end up being moves you regret later on.

By taking a more level-headed approach and carefully considering and possibly altering your strategy, you can stay invested in the market and potentially reduce your risk in the process. There's no one-size-fits-all solution for investors, which is why it's important to consider what's important for you before making any investment decisions.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.