The S&P 500 is firmly in correction territory after selling off more than 10% since the start of the year. In fact, it’s flirted with a 20% decline, which would meet the dictionary definition of a bear market.
It can be scary to invest during a bear market. The fear that prices will continue to drop after you put money in can prevent you from buying at all. But waiting for a better opportunity to buy stocks — regardless of whether we’re in a bear or bull market — is a fool’s errand.
If you don’t buy now, when will you?
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You probably know the stock market has always gone up over the long run. That includes past periods with tragic wars around the world, a pandemic and other major health scares, high inflation and slow job growth, and all sorts of factors weighing on the economy. The stock market has always gone up.
Logically, you know that buying stocks today is a good long-term bet. But fear is preventing you from making that choice. What if the stock market goes down next week?
This feeling will never go away. If stock prices drop further this summer, will you feel comfortable buying then? What if they go up? Will you feel like you missed out and wait for the prices to come back down?
If you’re not going to buy today, what set of conditions will make you want to buy tomorrow? If you don’t have an answer for this question, you should be buying today.
Reframe your decision
If you’re still on the fence about putting more money into the stock market, you should reframe your decision.
Consider that holding cash is a guaranteed loss. Inflation is eroding the value of your cash at a rate we haven’t seen in 40 years. At least investing it gives you an opportunity to maintain (and hopefully grow) the buying power of your savings. You may be more willing to take the risk of investing if you want to avoid that guaranteed loss from inflation.
Additionally, your frame of reference for investing in stocks may be too short of a time period. If you’re only looking at stock performance since the start of the year, it might look like stocks only go down. But if you look at stock prices since the start of the pandemic, it’s clear stock prices can climb even amid the first pandemic in 100 years.
Reframe your decision and make sure you get consistent results (i.e., you still don’t want to buy stocks). If you still can’t pull the trigger, you may simply have to adjust for a lower risk tolerance.
Check your asset allocation
If the recent drop in stocks is making you afraid to add more money to your investment portfolio, you may need to reassess your risk tolerance. If you previously thought you could tolerate the swings of a portfolio 100% invested in stocks, but find yourself capitulating at the first signs of increased volatility, you should probably adjust something.
Most experts advise that you should invest heavily in stocks while you’re young and slowly shift more of your portfolio to bonds and other low-volatility assets over time. That strategy will allow you to grow your portfolio fastest long-term while preserving capital better as you approach retirement.
But if a high exposure to stocks prevents you from investing at all when you’re relatively young, it’s a bad strategy for you. Maybe instead of an 80% allocation to stocks and 20% for bonds, you’d be able to stomach the volatility of a 50-50 portfolio better. You may miss out on some returns, but you’ll also be able to stick with your investment plan, which can result in you saving a lot more over the long run.
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