In 2022, the S&P 500 lost 19.44%, representing its worst year since 2008. The S&P 500 index, which is comprised of the 500 largest publicly traded companies, is generally considered to be an indicator of the stock market’s performance on a whole. In fact, if you hear someone say something like “the stock market fell 2% today,” there’s a good chance that by “stock market,” they mean the S&P 500.
Given this, it’s fair to say that 2022 was a down year for the stock market. And it was a year that no doubt rattled investors — especially those who are still looking at on-screen losses in their brokerage accounts.
But if you invested money in 2022, you actually did a smart thing. And if 2023 ends up being a down year also, then it pays to keep pumping money into different investments, even though you may be inclined to do the opposite.
Why investing in a down market pays off
Your goal in buying stocks and other assets shouldn’t necessarily be to snag the lowest possible price. Rather, it should be to buy at a point where the value of those assets has the potential to go up.
If you’re tracking a stock and notice that its price has just reached a 52-week high, you may not want to buy it just yet. The reason? That stock may have peaked.
But let’s say there’s a given stock you’ve been eyeing whose price was $100 per share six months ago, and is now priced at $78 a share. If the reason for that drop has more to do with general market conditions and less to do with that company’s prospects, then buying that stock for $78 a share makes a lot of sense. That’s because there’s a good chance that stock will eventually be worth more than $78.
The same general concept applies to investing in a down market, whether you do so by loading up on individual stocks or going broad and putting your money into exchange-traded funds, or ETFs. If you buy when the market is down, there’s a good chance that your investments will be worth more money eventually. If you buy when the market is up, that might still happen — but it may not.
It’s all about patience
One thing you don’t want to do in a down market is buy stocks and hope their value will rise substantially within a year so that you can cash out, take the money, and run. Investing in the stock market is something you should plan on doing over a lengthy period of time. That’s because it can take time for a down market to recover, and often, being patient is the ticket to making money.
Of course, we don’t know if 2023 will end up being a down market or not. The year has started off on a somewhat volatile note, and thanks to the ever-persistent problem of inflation, it’s hard to know how stock values will fare. But if 2023 ends up being a year of lower stock values, don’t shy away from investing. Instead, put more money into stocks to set yourself up to profit big time in the long run.
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