If a Stock Market Crash Is Coming, History Shows This Is the Smartest Move Investors Can Make
Key Points
Even as indexes hit new highs, many investors are feeling pessimistic about the market.
While nobody can predict the future, history has promising news for investors.
- 10 stocks we like better than S&P 500 Index ›
The stock market is soaring, with the S&P 500 (SNPINDEX: ^GSPC), Dow Jones Industrial Average (DJINDICES: ^DJI), and Nasdaq Composite (NASDAQINDEX: ^IXIC) all reaching record highs in recent weeks.
However, there's no shortage of concerns among investors. More Americans feel pessimistic than optimistic about the market's next six months, the most recent weekly survey from the American Association of Individual Investors found, and consumer sentiment also hit a new low in May.
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That doesn't mean a market crash or recession is around the corner, but now is the ideal time to strengthen your strategy. Fortunately, it's simpler than you might think.
Image source: Getty Images.
Should you sell your stocks during a downturn?
It can be tempting to sell off your investments, especially if you're worried about a downturn. But timing the market accurately is nearly impossible, and research shows it can cost you, too.
A study conducted by financial research firm DALBAR found that the average annualized return among investors was just 2.8% between 2001 and 2020, compared with 7.5% for the S&P 500. Researchers also revealed that poor market timing was one of the factors behind the average investor's poor performance.
The market can be so unpredictable that even the experts sometimes get it wrong. In June 2023, for example, Deutsche Bank forecast a "near 100%" chance that the U.S. would enter a recession in the next 12 months. Instead, the S&P 500 soared by nearly 25%.
^SPX data by YCharts
One of the smartest moves you can make, then, is to simply stay invested. Despite tariffs, inflation, and surging oil prices, major indexes have continued to thrive. There's always a chance they will continue reaching new highs for many more months.
Even if we do face a downturn, time is your most valuable resource. The S&P 500 has soared by more than 740% since January 2000, as of this writing, despite multiple record-breaking bear markets in that time.
No matter what may be coming, history has proved time and time again that investing in quality stocks and holding them for at least a few years is key to surviving whatever the market throws at you.
Should you buy stock in S&P 500 Index right now?
Before you buy stock in S&P 500 Index, consider this:
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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.
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