The market appears to be declining right now, which means it’s a great time to buy stock. Here’s why:
Tl;Dr – A market decline is nothing more than a discount sale on stock. Take advantage of the discount and double down before prices go back up.
A diversified portfolio protects you from loss in that if a single stock or a single industry drops, the others will still likely rise; evening out your portfolio, so you still receive an overall gain despite losses in some areas.
However, sometimes the entire market crashes. We’ve seen it in the 1929 crash, the 1987 crash and again in 2008.
All three of these crashes have at least 2 things in common.
1. The crash was worsened by people panicking and selling during the decline.
2. The market eventually recovered.
And that’s where we get a vital investment principle:
Barring a world-wide apocalypse (in which case our little pieces of cloth we call money won’t matter much anyway) the market will always recover. All crashes are temporary.
What you always see in a decline is undisciplined people selling, disciplined people holding and smart people buying.
Why buy during a decline?
If you believe your history books and think long term, stock prices will eventually recover and go back up. Buying during a decline is like buying stock at discount rates. As long as you maintain a diversified portfolio the prices will eventually go back up and you will have made a handsome short term profit and improved the long term performance of your investments.
And who knows, if everyone looked at a decline as an opportunity and bought instead of selling, we might never have a stock market crash ever again.
This advice ONLY applies to a diversified investment portfolio. If you are investing in individual companies, or single investments then your losses are not guaranteed to rebound.