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5 Reasons Not to Worry About a Stock Market Crash
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5 Reasons Not to Worry About a Stock Market Crash

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5 Reasons Not to Worry About a Stock Market Crash

It's been nearly a year since the stock market had one of its biggest meltdowns in history. Who can honestly say they didn't feel at least a tinge of panic when it seemed like a third of their wealth had just disappeared?

If you think another crash is coming, you're right. The stock market has undergone 38 corrections since 1950. Here are five reasons to stop worrying already.

Image source: Getty Images.

1. You want to invest when others are panicked.

If you'd invested $10,000 in the S&P 500 index on March 23, 2020, when the index hit rock bottom, you'd have more than $17,500 today. Of course, you shouldn't count on being able to pinpoint the moment stocks will hit their low. But the point is, a stock market crash can be a tremendous opportunity if you're prepared for it.

Rather than panicking about a market crash, make a list of stocks to buy during the next crash. They should still be stocks that meet your investment thesis and that you'd want to own even if the market didn't tank. But if they meet that criteria, the next crash is an opportunity to buy at a bargain.

2. If you don't sell off, the losses will be temporary.

The easiest way to avoid losing money in a crash: Don't sell during a crash. If you can afford to give your investments time to recover, the losses you've suffered will largely disappear. Sure, some fragile companies won't survive a bear market. But rather than worrying about the next crash, take time to give your portfolio a checkup and sell anything you don't want to hold in the long term.

3. A bad day often means the best days are ahead.

If the market just plummeted, odds are high that some great days are about to happen. Between Jan. 3, 2000, and April 19, 2020, seven of the stock market's 10 best days happened within two weeks of the worst days. Five of the best days occurred within one week of the worst days.

Plenty of experts were predicting last spring that the stock market could take years to recoup its losses. In reality, the S&P 500 index took just 126 days to recover after bottoming out on March 23. The stock market's best day of 2020 was March 24, when the S&P 500 climbed 9.38%. The Dow Jones Industrial Average posted its biggest gain since 1933 that day as well. That doesn't mean every recovery will be so swift. But a crash doesn't mean that your investments will be in the dumps for years to come.

4. You can still make money off those dividend stocks.

Even if share prices are pummeling, your returns won't necessarily be negative or zero. Investing in dividend stocks can help you generate returns, even during a crash. Dividends are never guaranteed, of course. But the Dividend Kings have increased their dividends for 50 or more consecutive years. Dividend Aristocrats have at least a 25-year track record of dividend hikes. Investing in companies with a long history of increasing their payouts each year -- even during prolonged downturns -- can buy you some peace of mind.

5. The market has always recovered eventually.

History tells us why you shouldn't lose sleep over a stock market crash: Your chances of profiting from investing in the S&P 500 are 73% in any given year. Over five years, your odds are 87%. Over 10 years, odds are 94%. And S&P 500 returns over a 20-year holding period have always been positive.

Recoveries don't always happen as quickly as you'd like. But just as you can count on the stock market to crash again, you can also count on it to rebound eventually.

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