Stocks Just Had Their Worst First Half-Year Run in 52 Years. Here’s Why You Shouldn’t Worry
The last half-year hasn’t exactly been stellar for the stock market. During the first six months of 2022, the S&P 500 dropped 20.6%, marking its worst first-half performance since 1970. Meanwhile, during that same timeframe, the Dow had its largest first-half drop since 1962. And let’s not even talk about the Nasdaq, which had its largest percentage drop in its history.
All told, the events of the past six months have a lot of investors worried, and understandably so. But while things might seem bleak right now, the reality is that investors really shouldn’t panic.
It’s still only a loss on screen
Many investors have seen significant losses in their portfolios since the start of the year. But one thing you should always remember is that until you sell off investments when they’re down, what you’re seeing is merely a loss on screen (or on paper, if you’re the “wait for my statements to arrive in the mail” type).
That isn’t to say that an on-screen loss isn’t unsettling. But if you leave your portfolio alone, there’s a good chance that in time, your investments will recover their value so you don’t wind up losing any money at all.
Protect your portfolio
While the current state of the stock market — and the impact it may have had on your portfolio — shouldn’t cause you to lose sleep night after night, the reality is that there are things you can do to protect your portfolio from taking an undue hit. And perhaps the most important one is to make sure it’s well-diversified.
A big reason many investors are looking at sizable losses right now is that they went extra-heavy on tech stocks due to the sector’s recent boom, only to get burned by the speed at which big-name stocks lost value during the first half of the year. If you own a lot of stocks within the same market sector, make a point to branch out to other sectors as quickly as you can.
Another easy way to diversify? Load up on broad market index funds. These passively managed funds don’t impose the same hefty fees you’ll often find with actively managed mutual funds. At the same time, they offer built-in diversification, and they’re also a good bet for newer investors who may not feel comfortable analyzing stocks individually.
Stay the course
Looking at your portfolio balance right now might make you want to bang your head against the wall or curl up in a ball and stay there for days at a time. But as difficult as it may be to see such extreme losses in your portfolio, try to remember that as long as you don’t go off liquidating investments, chances are, those losses will only be temporary.
In fact, if you have extra money on hand, now’s actually a good time to buy stocks, because many strong companies are trading at a discount. And if you’re not sure which specific company to buy, go all in by loading up on something like an S&P 500 index fund.
We don’t know when the stock market will pull out of its current slump, but it’s important to not make any rash decisions while stock values are down across the board. If that means locking yourself out of your online brokerage account for a while, do it. It could spell the difference between taking losses and riding out the storm.
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