This year has been a whirlwind for investors, with the stock market hitting rock bottom and then soaring to record highs within just a few months. This volatility can make it challenging to determine when and where you should invest, because nobody knows what the market will be doing next month, next week, or even tomorrow.
Fortunately, you don't necessarily need to know what the immediate future holds for the stock market, because one of the best moves you can make is to adopt a long-term investing strategy. And the market's historical returns demonstrate why this is such a smart approach.
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What goes down comes back up
Stock market crashes can rattle even the most experienced investors, but focusing on the long term is key to surviving a downturn.
The stock market will always experience dips on a regular basis, so it's more important to look at the big picture and see how the market performs over time.
Despite the short-term ups and downs, the S&P 500 (which is a good representation of the stock market as a whole) has seen an upward trend over the last 25 years. Even after major downturns during the early 2000s and the Great Recession in 2008, the market was able to bounce back.
As you're investing, keep this chart in mind to avoid costly mistakes. If you panic at the first sign of a market crash and sell your investments, you could be missing out on potential gains. By focusing on the long term instead, though, it may be a little easier to keep investing even when the market is on shaky ground.
Choosing the right long-term investments
Simply holding onto your investments is only half of the equation, and it's equally important to ensure you're investing in stocks and funds that will stand the test of time. If you invest in the wrong places, continuing to throw money into those investments year after year may not be the best move.
The safest bet to ensure you see positive gains over time is to invest in index funds. Index funds follow the market, meaning when the market is up, index funds will see positive returns as well. Of course, this also means that index funds will take a hit when the market is down, but again, the market has proven that it can recover from even the worst crashes -- so it's extremely likely index funds will also rebound.
If you opt to invest in individual stocks, be sure to do your research. Jumping on the latest trend may result in short-term wins in some cases, but if your goal is to see steady long-term growth, this may not be the best strategy. Instead, focus on investing in solid companies that have the potential to survive tough economic conditions. These are the businesses that are more likely to be around in years or decades, making them wise choices when you're investing for the long term.
Investing for the long term may be the key to success
There are never any guarantees when investing in the stock market, but putting your money behind solid investments that have a proven track record is one of the best ways to safeguard your savings. And by taking a long-term approach to investing, you can rest easier knowing that it doesn't necessarily matter what the market is doing right now.
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October 04, 2020 at 03:03AM
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