Worried About the Stock Market? History Says Investors Should Keep These 3 Things in Mind.
The stock market may be the best place to build long-term wealth, but there’s no guarantee it will be a smooth ride as investors have likely noticed in the past week of steep price swings.
The announcement of fresh tariff policies on April 2 sent the S&P 500 (SNPINDEX: ^GSPC) plunging. The downward trend continued into the following week until April 9, when President Trump issued a 90-day pause on nearly all of the newly announced tariffs, except those on Chinese goods. That reversal pushed the benchmark index up a jaw-dropping 9.5% in a single session.
Despite that temporary sigh of relief, many investors are still worried. In times of uncertainty, history says to keep these three things in mind to stay on track with your portfolio.
Everyone wants to see the value of their portfolio always go up and to the right, but this just isn’t how the market works. If you view the stock market as a reflection of every investor’s mood at any given point in time, it makes sense there will be periods of extreme optimism, as well as times when it feels like the world is ending.
In other words, corrections and bear markets aren’t anything new. In fact, the S&P 500 has experienced a correction 56 times since 1950, and a bear market occurs about once every three-and-a-half years. Despite the down periods, which can be unnerving, the broad index has produced a historical average annualized return of 10%.
It’s also worth mentioning that the best buying opportunities can often present themselves when the prevailing market sentiment is most bearish. As legendary investor Warren Buffett is known for saying, “Be greedy when others are fearful.”
The current economic environment is full of uncertainty. Investment banks are updating their models to reflect increased odds that the U.S. will enter a recession this year. Consumer confidence has plummeted, and it’s now at the lowest level in over two years. Companies are lowering their growth forecasts.
To be clear, it’s natural for an investor to worry when facing these developments. The situation might even discourage you from putting money in the market, or even worse, it might lead you to sell your stocks.
But if you look at the past, it also becomes clear how investors must always grapple with an uncertain environment. Just in the past five years, they’ve had to navigate the COVID-19 pandemic, supply chain bottlenecks, inflationary pressures, and rapidly rising interest rates. Yet, those issues didn’t prevent the S&P 500 from posting a total return of 96% since April 2020.
