Sometimes, the best course of action is inaction.
- The S&P 500 index consists of the 500 largest publicly traded companies.
- It’s used as a measure of how the stock market is doing on a whole.
- The index performed poorly in 2022, but things could get even worse in 2023.
If you’ve been following the stock market, you may be aware that things are generally not looking great these days. And if you’re invested in any S&P 500 companies or ETFs (exchange-traded funds), then chances are, your portfolio has lost value compared to what it looked like a year ago.
The S&P 500 is a market index that consists of the 500 largest publicly traded companies. When people say things like “The stock market had a bad day,” what they often mean is that the S&P 500 lost value.
Now, as a matter of context, the S&P 500 is, as of this writing, down almost 17% from a year ago. That means that if you had a $100,000 brokerage account balance at the start of 2022 and your assets are all in S&P 500 ETFs (funds that aim to track and match the performance of the S&P 500 itself), your portfolio might now only be worth $83,000.
But there’s even worse news. In a recent podcast, financial guru Suze Orman warned that the S&P 500 could fall even more. And it’s important to know how to react to that possibility.
When doing nothing is your best bet
If you’re heavily invested in the S&P 500 and it loses further value, you may be inclined to sell off your assets in a panic. But that’s a really bad move.
A better bet? Do absolutely nothing.
Although the S&P 500 has had a rough go these past 12 months, and it could be in for another rocky 12 months, historically, the index has rewarded investors who have stuck with it for a long time. So rather than dump your stocks or ETFs out of fear if the index’s value declines even more, instead, pledge to keep your cool and stay invested.
It could take a while for the S&P 500 to regain the value it’s shed over the past 12 months. But in a couple of years from now, it might not only be recovered, but in a place where it’s gained value. And that’s really what you need to focus on.
The most effective way to make money as an investor is to load up on quality assets and hold them for many years. If you stick with your portfolio for several decades, you’re more likely to make money than lose money. So if you commit to doing nothing when stock values fall, you can spare yourself losses and set yourself up to profit nicely in the long run.
It could pay to turn off the news
If you own shares of individual companies within the S&P 500, then it’s important to keep tabs on news related to them and track their performance. But if you own shares of S&P 500 ETFs, you don’t have to concern yourself with daily, weekly, or even monthly fluctuations.
In fact, a good bet may be to ignore stock market news and wait out this rough patch. Doing so might help you avoid needless stress — and also, help you avoid making rash decisions that hurt you financially in the long run.
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