After years of record-breaking growth, major market indexes are wavering. The S&P 500 (SNPINDEX: ^GSPC) is down more than 1.25% since early June, while the Nasdaq Composite (NASDAQINDEX: ^IXIC) has fallen by more than 6% in that time.
To be clear, short-term volatility doesn’t necessarily mean that a crash is imminent. But there are plenty of headwinds facing the market right now, including surging oil prices, persistently high inflation, and concerns about AI spending.
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Downturns are a normal part of the market’s cycle, so while nobody can say exactly when the next bear market will begin, it’s a matter of when — not if — we face one. Here’s how the smartest investors are already preparing.
The smartest investors are buying more
It may sound counterintuitive, but the best way to protect your portfolio against volatility is to continue investing throughout the volatile periods.
The market can be incredibly unpredictable in the near term, and even the experts can’t say what will happen. Attempting to buy or sell at just the right moment can sometimes work out if you’re lucky, but more often than not, it ends up being costly.
For example, in June 2023, analysts at Deutsche Bank predicted a “near-100%” chance that a recession would begin in the next year. That recession still hasn’t materialized three years later, and in that time, the S&P 500 has soared by more than 76%.
If you’d avoided the market back then, you’d have missed out on an incredibly lucrative investing period. Even worse, if you’d sold your stocks but then decided to reinvest later — after prices had surged — you’d risk paying a premium to buy back the same investments you’d previously sold.
Despite the warning signs, the market could have many months of growth still ahead. Pressing pause on investing right now may seem like the safer move, but it could significantly limit your long-term earning potential.
What if a recession really is coming soon?
The other side of the coin, of course, is that a downturn might actually be around the corner. Even if that is the case, history has good news for long-term investors.
No matter what happens in the short term, the market has a flawless track record of recovering from crashes, recessions, and bear markets. Investors who reap the biggest rewards are those who stay in the market for the long haul.
