So it's happening. The great stock market crash everyone all over YouTube and Tiktok has been predicting is finally here. Pretty much all stocks are in the red, the S&P 500, the Nasdaq, the Dow, no one is spared except for a very few exceptions.
First of all, breathe. Don't panic.
What should you do? Sell out of your stocks before they crash further? Or hold onto them for them to start climbing again? The answer? It depends.
Have you been buying speculative companies that make no money such as NIO or NKLA? Or have you been buying high quality stocks such as Microsoft, Apple or Google? Perhaps you've invested in ETFs such as VOO (S&P 500) or QQQ (Nasdaq).
One thing that we've learned over the years, is that, generally speaking, the stock market tends to go back up and reach new heights after a bearish period or a crash. If we look back in time, this is what the S&P 500 looks like:
You can see that, with perspective, the dip we are experiencing today is not that significant. You can also see that there have been similar dips in the past, and the market ended up recovering to reach new heights. Many expert investors such as Warren Buffet are huge advocates of this theory. In fact, Warren believes that the average investor should simply invest in a low cost S&P 500 ETF and let it do all the work, because beating the market or timing it proves to be very difficult.
I believe that, if you are invested in an ETF such as VOO, you should hang on to your investments and even look into buying more while the the ETF is on discount.
If you held highly speculative companies such as NIO or NKLA, now might be the time to admit defeat and sell out of those stocks. As opposed to an index fund like the S&P 500, speculative stocks have a much slimmer chance of recovering to their all time highs. Of course, many factors come into play
If you are holding high quality companies with strong fundamentals like Microsoft, Apple or Google, you are essentially bidding on a big chunk of the S&P 500, roughly 20% of it accounts for the companies Facebook, Amazon, Netflix, Alphabet (Google) and Apple. In a way, you could say that holding these companies is a "more aggressive" way of holding an S&P 500 ETF, focusing on the fast growing companies.
Most importantly, don't act on impulse.
What are your thoughts? Do you believe the market has reached its bottom yet? Will it recover soon or as fast as it did following the first pandemic crash in March 2020? Let me know your thoughts!
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