Many investors right now are afraid of the stock market. No one wants to invest in highs only to see the market go down right after they put their money to work. And now more than ever, everyone seems to be thinking the next stock market crash is ahead.
But there is a simple truth to investing: Anyone can get rich in the stock market. A solid long-term investment strategy and the time and discipline to stick to it is all you need to be successful. What stops most people from making their financial dreams a reality is fear – fear of the next stock price crash.
If you want to get past that fear, you need to learn two things about the stock market. First, market crashes are inevitable. But second and more importantly, crashes don’t happen nearly as often as you would think, and they’ve often just been speed bumps on the road to life-changing wealth for equity investors. Below I share my secret to getting over fear of a market crash and you can use it too.
The folly of predicting the next stock market crash
Stock market crashes happen from time to time. They are inevitable. If you invest long enough, you will eventually go through a crash.
It is only natural to want to be able to predict when the next one will happen. That way, you can sell at high prices just before the fall and then return to the market at bottom prices.
The problem is that there is always a reason to expect an impending stock market crash. Looking back on the past year, almost any bearish call looked quite reasonable at the time. But listening to them only costs you the chance of huge returns.
May 2020: Fear of double dip
Immediately after the coronavirus market in February and March 2020, stocks began to recover. Many market watchers were skeptical and argued that one second crash was just around the corner.
This view seemed completely reasonable at the time. Tens of thousands of people were out of work, there was no end in sight to company shutdowns, and fears of more waves of COVID-19 cases challenged the ability of the federal government and the Federal Reserve to come up with enough stimulus measures to keep things going.
Still, if you expected the crash to occur within a few weeks or months, you would be very disappointed. During the four months from the beginning of May to the end of August has S&P 500 jumped by 24% and many individual stocks performed much better.
September 2020: Fear of irrational markets, political chaos and vaccine failure
September brought a minor correction , and it brought the lawsuits out again. It was easy to look at new catalysts as a cause for concern, including the presidential election, stock valuation at more elevated levels than they had reached before the pandemic, and the slow progress toward a coronavirus vaccine.
But again, if you figured a crash would come before the year was out, you were wrong. S&P rose another 10% between the end of August and New Year’s Eve. Those who sold to the market’s lowest level just before the November election missed a rally that would have given them a return of 15% or more.
January 2021: A surprise in Washington
People all over the world were eager to put 2020 behind them. Still, nervous investors believed that a strong market in 2020 simply delayed the inevitable, and some expected a rapid crash to start in 2021. Concerns included sluggish vaccine rollout, Senate elections and the potential for unrest as the presidency changed hands.
The crash did not happen. There has been some volatility in the stock market, but in just six weeks the S&P 500 has risen by a further 6% so far this year.
See your fears
Looking back on previous predictions, some interesting things are highlighted. First, they were the ones who predicted often right about certain events that happen. Can predictions of a recovery in COVID-19 cases prove to be correct. Vaccines took longer than hoped for approval, and their rollout has been painfully slow. Control of the U.S. Senate changed hands, and there were riots in Washington that led to the inauguration. But what the predictions got wrong was the impact on the stock market.
Second, the cost of giving in to your fears has been prohibitively high. The S&P 500 has risen 1,650 points from its lowest in March. It would require a crash of more than 40% to return to these levels. Even if there was a 20% crash, it would only bring S&P down to the levels where it traded in July last year.
And lastly, the one time where people not was real prediction of a stock market crash was before the crash in 2020 actually happened. Sure, there were a few forecasts that suggested the end of the decadelong bull market should happen eventually. But they lacked details and they were not really suitable for any particular action to take.
Accept the next crash
Most importantly, the 2020 market crash did not shatter the financial hopes of long-term investors. Those who stuck to the market and coped with the ups and downs are doing much better than they were before the crash.
There will be a stock price accident in the future. It will not be fun and it will be difficult to get through because all market crashes are hard to endure.
But don’t let the next crash be the villain that prevents you from investing. Your future prosperity is at stake. The only thing to be afraid of is that your fears are what are preventing you from having the financial life you have always wanted.
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