Its easy to get spooked by a market downturn, but heres why you shouldnt be.

Maurie

Key Points

  • Stock market crashes can be frightening events.
  • While stock market corrections are fairly common, full-blown crashes happen less frequently.
  • Either way, theres really no reason to panic when stock values start to fall.

When will the next stock market crash happen? Its almost impossible to say. Many experts were convinced that stocks would crash late last year or during the first half of 2021, mostly due to the fact that the market has been largely overvalued for a really long time. But that didnt happen.

Heres what we do know, though. The stock market is apt to tumble eventually. But thats not something that should cause you to lose sleep. Heres why.

Person

Image source: Getty Images.

1. Stocks go on sale during downturns

Stock market crashes are typically regarded as a bad thing. But youre better off looking at them as an opportunity. When stock values drop, you, as an investor, get a prime opportunity to build out your portfolio on the cheap.

Say youve had your eye on a specific company whose share price has hovered around $500. Now, lets say the broad market tanks and stock values fall 20% across the board. Suddenly, you can scoop up those shares at $400 apiece, wait for the market to recover, and then profit big time.

2. Long-term investors typically arent hurt by crashes

The stock market has undergone dozens of corrections (periods where stock values drop 10% or more) in its history, and its managed to recover from every single one. Short-term investors may have gotten burned by corrections, but those who stayed invested for decades wouldve largely come out ahead.

If you adopt an investing strategy that involves buying quality stocks and holding onto them for decades, then youll put yourself in a great position to get through a stock market crash unscathed. In fact, in the grand scheme of what could be a 40- or 50-year investment window, a single market crash may end up being quite meaningless.

Imagine youre in your 20s and are building a stock portfolio for retirement. The only time you should really be concerned with a market crash is within the five- to seven-year window before your target retirement date. And by then, youll ideally have shifted some of your assets out of stocks and into safer alternatives like bonds anyway.

3. You can prevent losses during a crash by simply doing nothing

Simply owning stocks during a market crash wont cause you any financial losses. Its when you go out and sell stocks when theyre down that financial damage occurs.

The solution? Dont make any moves when stock values plunge. Its really that simple. If you leave your portfolio alone and wait things out, you wont be negatively affected at all. Rather, all youll be doing is looking at a loss on paper (or, these days, on screen).

Whether youre new to investing or have been building a portfolio for years, stock market crashes can be scary events. After all, its very unsettling to see the value of your portfolio decline swiftly overnight. But one thing you must remember is that if you play your cards right, you can survive a stock market crash without taking any sort of financial hit. In fact, keeping your cool during a market crash could spell the difference between coming out unscathed and suffering serious losses.

The Motley Fool has a disclosure policy.

>

Motley Fool Returns

Stock Advisor S&P 500

620% 141%

Join Stock Advisor

Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Stock Advisor list price is $199 per year.

Stock Advisor launched in February of 2002. Returns as of 09/01/2021.

Cumulative Growth of a $10,000 Investment in Stock Advisor Calculated by Time-Weighted Return Motley


Related Articles


Write us

Find us at the office

Darmofal- Broderick street no. 11, 88736 Vatican City, Vatican City

Give us a ring

Meadow Hipsley
+90 293 316 242
Mon - Fri, 8:00-14:00

Join us