It's been a rough few weeks for the market. What does that mean for your investments?
The stock market has been shaky over the last several weeks, with the S&P 500 down close to 9% since the beginning of the year.
Some investors may worry that we're headed toward a full-blown market crash, but nobody knows for certain what the future holds. The market could crash or may bounce back from this downturn and continue surging.
That said, periods of volatility can be unnerving. It may be tempting, then, to pull your money out of the market, just in case prices continue to fall. But is that the right move for you?
Image source: Getty Images.
Should you withdraw your money?
It's impossible to predict exactly how the market will perform over the coming weeks or months. Even the experts can't say for certain what will happen, which can make it challenging to prepare for a potential crash. While pulling your money out of the market may seem like a wise choice, it can be riskier than you might think.
In an ideal world, you would withdraw your investments just before a crash, then reinvest once prices are at their lowest to take advantage of the rebound. In the real world, though, that strategy is extremely difficult to pull off successfully.
Because the market is unpredictable, it's nearly impossible to time the market effectively. If you pull your money out now and prices surge, you'll miss out on those gains. If you reinvest later, you could end up paying even more if prices have continued to increase. On the other hand, if you wait too long to sell, you could lose money if prices have dropped substantially.
What should you do with your investments?
Although it may sound counterintuitive, one of the best ways to protect your investments against market downturns is to do nothing.
When you hold your investments, you won't lose any money if the market takes a turn for the worse. Your portfolio may drop in value in the short term, but as long as you don't sell, you won't lock in those losses. When the market inevitably recovers, your investments should rebound, as well.
Choosing the right investments is key, then, to surviving downturns. Strong companies are more likely to bounce back after periods of volatility. By filling your portfolio with these types of stocks, your investments have a better chance of pulling through, as well.
Right now is the perfect opportunity to comb through your portfolio and double-check that all of your stocks are strong long-term investments. They should have solid underlying business fundamentals, healthy financials, and a competent leadership team.
Stock market downturns can be intimidating, but with the right strategy, there's a good chance your portfolio will survive. By choosing the right investments and maintaining a long-term outlook, you'll be prepared for whatever the future has in store for the market.
FAQs
Some investors believe that by selling during a downturn, they can wait out difficult market conditions and reinvest when the market looks better. However, timing the market is extremely difficult, and even professionals who attempt to do this fail more often than not. That's especially true with funds.
Should I take my money out of the stock market now? ›
When the stock market is in free fall, holding cash helps you avoid further losses. Even if the stock market doesn't drop on a particular day, there is always the potential that it could have fallen—or will tomorrow. This possibility is known as systematic risk, and it can be completely avoided by holding cash.
What is the rule of 72 Motley Fool? ›
Let's say that you start with the time frame in mind, hoping an investment will double in value over the next 10 years. Applying the Rule of 72, you simply divide 72 by 10. This says the investment will need to go up 7.2% annually to double in 10 years. You could also start with your expected rate of return in mind.
What is the success rate of the Motley Fool stock picks? ›
Motley Fool Stock Picking Performance
But do their stock picks actually deliver? According to Motley Fool, their Stock Advisor recommendations have averaged returns of 584% since 2002, compared to the S&P 500's return of 114% in the same period. That's over 5x the market's performance.
Does Motley Fool actually beat the market? ›
The Motley Fool's most popular services, Stock Advisor and Rule Breakers review, have both outperformed the S&P 500 by a wide margin since they were launched. This is quite remarkable given that 95% of fund managers on Wall Street struggle just to match the market's return.
What is the outlook for the stock market in 2024? ›
Overall, Yardeni Research forecasts S&P 500 operating earnings at $250 in 2024, up 12% vs 2023. He puts them at $270 in 2025 (up 8%) and $300 in 2026 (up 11.1%). These figures compare with analysts' consensus forecasts of $244.70 in 2024, $279.70 in 2025 and $314.80 in 2026.
Should I take my money out of the bank before a recession? ›
Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution. What happens if my bank fails during a recession?
At what age should you take your money out of the stock market? ›
There are no set ages to get into or to get out of the stock market. While older clients may want to reduce their investing risk as they age, this doesn't necessarily mean they should be totally out of the stock market.
When should I cash out my stocks? ›
When to sell a stock: 7 good reasons
- You've found something better. ...
- You made a mistake. ...
- The company's business outlook has changed. ...
- Tax reasons. ...
- Rebalancing your portfolio. ...
- Valuation no longer reflects business reality. ...
- You need the money.
With the right strategy, there's never necessarily a bad time to invest in the stock market. Regardless of whether prices surge or dip in the coming months, by investing in quality stocks and staying in the market for the long haul, you can maximize your earnings while minimizing risk.
The 4% rule is wonderfully simple. It states that an investor can withdraw 4% annually (adjusted for inflation) from a portfolio of 60% stocks and 40% bonds, and expect their savings to last at least 30 years. For example, consider a $1 million nest egg. John or Jane Doe should be able to withdraw $40,000 in year one.
Does money double every 7 years? ›
For example, the Rule of 72 states that $1 invested at an annual fixed interest rate of 10% would take 7.2 years ((72 ÷ 10) = 7.2) to grow to $2. In reality, a 10% investment will take 7.3 years to double (1.107.3 = 2).
At what age did Warren Buffett become a millionaire? ›
Notoriously frugal — he eats a cheap McDonald's breakfast every day and lives in the same Omaha home he bought for $31,500 in 1958 — Buffett made his first million in 1962 at the age of 32, when his Buffett Partnership was valued at over $7 million and his shares worth over $1 million.
What is the best stock to own with the Motley Fool? ›
The Motley Fool has positions in and recommends Alphabet, Amazon, Block, Etsy, Meta Platforms, Microsoft, Netflix, Nvidia, Salesforce, Shopify, Tesla, and Vanguard Index Funds - Vanguard Small-Cap Growth ETF.
What is the average return of Motley Fool stock advisor? ›
Motley Fool Stock Advisor Performance
Since 2002 inception: Average return of 552% vs. 139% for the S&P 500. Past 10 years: Average return of 292% vs. 186% for the S&P 500.
Which is better Zacks or Motley Fool? ›
Zacks is better if you want quantitative analysis and short-term trading ideas. Motley Fool is preferable for fundamental analysis and long-term investing approach.
Is Morningstar better than Motley Fool? ›
If you're looking for stock picks, choose The Motley Fool. I cover its flagship service in detail in this Motley Fool Stock Advisor Review. If you're looking for objective analysis and ratings on ETFs and mutual funds, choose Morningstar.
Has anyone made money with Motley Fool? ›
MY SUMMARY AS OF MAY 26, 2024:
The average return of all 530+ Motley Fool Stock Advisor recommendations since the launch of this service in 2002 is 703% vs the S&P500's 155%. That means they are now beating the market by OVER 4X since inception. They have a win rate of 66% profitable stock picks.
Should I trust the Motley Fool? ›
Since 1993, The Motley Fool has been a trusted source of investment and financial advice to millions of members. Read their reviews showcasing our commitment to making the world smarter, happier, and richer. We are dedicated to customer feedback in order to provide the best services possible.
Is it better to have cash or stocks in a recession? ›
A stock fund, either an ETF or a mutual fund, is a great way to invest during a recession. A fund tends to be less volatile than a portfolio of a few stocks, and investors are wagering less on any single stock than they are on the economy's return and a rise in market sentiment.
It becomes a bit more important to focus on top-quality companies in turbulent times, but, for the most part, you should approach investing in a recession in the same manner you would approach investing any other time. Buy high-quality companies or funds and hold on to them for as long as they stay that way.
Where is your money safest during a recession? ›
Still, here are seven types of investments that could position your portfolio for resilience if recession is on your mind:
- Defensive sector stocks and funds.
- Dividend-paying large-cap stocks.
- Government bonds and top-rated corporate bonds.
- Treasury bonds.
- Gold.
- Real estate.
- Cash and cash equivalents.
Avoid becoming a co-signer on a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt. Don't quit your job if you aren't prepared for a long search for a new one. If you own your own business, consider postponing spending on capital improvements and taking on new debt until the recovery has begun.
