Something occurred to me last night as I watched a documentary about Wall Street. The film touched on the stock market crash of 1973-1974. In the documentary, people ran around like their hair was on fire, absolutely panicked. My first thought was, “Wow. That didn’t touch me at all.” Sure, I was a young child, but my parents were investors, and it seems like I would have heard something about the biggest drop in the stock market since the Great Depression.
And because I can’t just let go of a thought, I made a list of all the huge drops since that time. There was the Black Monday crash of 1987, the dot.com bubble fiasco of 1999, the Great Recession of 2008, and the short but dramatic drop in the market during the COVID-19 pandemic.
The point is this: The market will experience drops — sometimes huge drops. It’s happened time and again since the New York Stock Exchange opened its doors in 1792. But like an airplane hitting turbulence, every time it’s dropped, it’s bounced back up.
Sure, we’re dealing with the aftermath of the pandemic and hoping inflation will find its way out the door, but now is not the time to panic. Now is the time to soberly consider the smart thing to do in the upcoming 12 months.
If you’re a bargain hunter
According to the raw numbers, we’ve crawled out of a bear market. So why doesn’t it feel like it? Because, according to Forbes, the market is still down nearly 20% over the past year. While that’s not as bad as it was, it still doesn’t feel great.
You may have heard this a thousand times, but there’s no better time to fill your portfolio with low-priced assets than when others are too scared to remain in the market. Based on the historical performance of the stock market, bear markets are followed by longer, stronger bull markets. And as those assets increase in value, you want them in your pocket.
For a bit of inspiration, consider this fact: Stocks lose an average of 36% during a bear market. However, during a bull market, stocks gain an average of 114%. There have been far more bull markets than bear markets, further increasing your odds of success.
The same rules that apply during a bull market apply today.
- Buy into assets you know and fully understand.
- Remain diversified between various asset classes so a dip in one sector can’t pull your entire portfolio down.
- Don’t buy anything you don’t plan to hold for at least 10 years.
Past returns are no guarantee of future results, but history shows that those who stick with it are rewarded.
If you’re nervous
While Wall Street strategists appear pessimistic, groups like Goldman Sachs, JPMorgan Chase & Co, and UBS Asset Management believe the economy will defy expectations. It’s these conflicting views that make investment decisions so tough for many of us.
If you’re losing sleep over the thought of market losses, it’s okay to take it easy on yourself. For you, 2023 may be the year to invest in lower-risk assets. Here’s a sample of low- to no-risk investments:
- Certificate of deposit (CD)
- Money market funds
- Treasury inflation-protected securities (TIPS)
- U.S. savings bonds
Regardless of whether the market is up or down, the world keeps spinning. The wrong move is to be paralyzed by indecision and do nothing in 2023. Whether you trust the market to rebound or decide to accept a lower return on low-risk investments, it’s important to remain in the game.
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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Dana George has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and JPMorgan Chase. The Motley Fool has a disclosure policy.