In Turbulent Times, Don’t Proceed with Caution?
Investing during turbulent economic times can be a daunting prospect for many people. The natural instinct of many investors is to withdraw their investments from the stock market during a downturn, hoping to avoid losses. However, history has shown that investing during market downturns can lead to higher returns over the long term. Investing during a market downturn allows investors to buy assets at a lower price. This is because during economic turbulence, stock prices often fall sharply, presenting an opportunity for investors to buy high-quality stocks at a discount. For instance, during the COVID-19 pandemic in 2020, the global stock market experienced a sharp decline, leading to many stocks trading at prices that were significantly lower than their intrinsic value. Investors who bought these stocks at lower prices stand to make substantial returns over the long term.
Also, turbulent markets and difficult economic times offer investors an opportunity to invest in quality companies with long-term growth prospects. When the market experiences a downturn, many investors sell their stocks in a panic, creating opportunities for long-term investors to acquire quality companies at a lower price. Such companies may have solid business fundamentals, a sustainable competitive advantage, and a strong balance sheet, indicating that they are capable of weathering the economic turbulence and continue to grow in the long term.
It should be clear that difficult economic times offer a valuable lesson in risk management. Investing during a market downturn requires patience and discipline, as markets can remain volatile for an extended period. However, investors who remain committed to their long-term investment goals and maintain a diversified portfolio can minimize their risk exposure and avoid panic selling. Although investing during market downturns can be trying, investors can learn how to manage risk and develop a more robust investment strategy.
Historical data has shown that investing during market downturns tends to produce higher returns over the long term. For instance, data from Fidelity Investments shows that investors who invested in the S&P 500 during the 2008 financial crisis and held their investments until 2018 earned an average annual return of 18.9%, compared to those who invested in the S&P 500 in 2007 and held their investments until 2018, earning an average annual return of 8.9%. This indicates that investing during a market downturn can lead to substantial returns over the long term.
Investing in turbulent economic times is great for the long-term investor, particularly for those that have a great investment strategy. By investing during a market downturn, investors can acquire quality assets at a lower price, invest in quality companies with long-term growth prospects, learn valuable lessons in risk management, and enjoy higher returns over the long term. While investing during market downturns requires patience, discipline, and a long-term perspective, investors who remain committed to their investment goals and maintain a diversified portfolio stand to benefit significantly from their investments. Whether you employ your own investment strategy or the one that we offer here at Investoristics, the key is to get started as soon as possible and to take advantage of market weakness when economic turbulence occurs. Contact us today to subscribe to our portfolio management newsletter to get better returns with significantly lower risks and higher returns than the market indices.
