The stock market can be intimidating, especially if you’re not an expert investor. But it’s also a wealth-building powerhouse, and the right strategy can help you accumulate hundreds of thousands of dollars (or more) over time.
It’s also not as challenging as it may seem to make money in the stock market. In fact, the secret to building wealth requires next to no effort on your part, and it involves harnessing the power of compounding.
The past year hasn’t been easy for most people. With inflation surging, stock prices falling, and a recession potentially on the horizon, many investors are concerned about the future.
That said, it’s possible to generate wealth in the stock market even during periods of volatility. You don’t need to be an investing expert or have loads of money — all you need is the right strategy.
Here’s how to make the most of this market downturn and start building life-changing wealth.
How to manage market downturns
The most important thing to remember when investing in the stock market is that it’s very different from a savings account. Even the safest investments experience regular ups and downs, and there will be times when your portfolio loses value. That’s normal.
Despite this volatility, it’s best to continue investing anyway — even when the market is in a slump. While your portfolio could lose value during market downturns, you don’t actually lose any money unless you sell your investments.
Regardless of what the market is doing, maintaining a long-term outlook can reduce your risk. The stock market as a whole has recovered from every crash, bear market, and recession it’s ever faced, and it’s extremely likely that it will recover from future downturns, too.
By simply waiting it out and continuing to invest like normal, you can keep your savings on track and avoid losing money.
Why right now is a smart time to buy
When stock prices are lower, it can be tempting to stop investing until the market stabilizes. However, now is actually one of the best times to buy stocks because prices are so low.
Over the past decade, the stock market has experienced a phenomenal bull run. Besides the brief crash in March 2020, this is the first major downturn since the Great Recession. While that’s a good thing, it’s been an expensive time to buy as stock prices soared.
Right now, though, is your chance to buy high-quality stocks at a fraction of the cost. The price of Amazon, for instance, is down nearly 47% from its peak, and many other stocks have seen their prices plummet by at least that much over the past year or so.
In other words, if you’ve been waiting for a more affordable time to buy, you may not get a better chance than this. But investing now will not only save you money in the short term — it will also set you up for potentially lucrative returns later.
Building long-term wealth in the stock market
When you invest during the market’s low points, you could see substantial returns when stock prices rebound. This is one of the easiest and most effective ways to build wealth, and you could earn more than you might think.
One of the best things you can do right now, then, is invest in quality stocks and wait for the market to rebound. If you’re investing in the right places, you stand to make a lot of money during the market’s recovery period.
Where to invest to maximize your earnings
Everyone’s investing strategy will be different, so there’s no one-size-fits-all approach as to where you should invest. However, there are a few key points that are relevant to everyone, regardless of your strategy:
- Only invest money you’re comfortable leaving in the market: Nobody knows how long this bear market will last, and there’s always a chance that things could get worse before they get better. Before you invest, be sure you won’t need that money for the foreseeable future.
- Keep a long-term outlook: The market can be incredibly volatile in the near term, but over many years, it’s consistently earned positive average returns. If your investments are shaky over the next few months, that’s normal. Stay invested, try not to worry about short-term fluctuations, and keep your focus on the long term.
- Invest in quality companies: The best investments are stocks from healthy companies. Businesses that have solid underlying fundamentals such as strong financials and a competent leadership team — are more likely to recover from downturns and go on to earn the highest returns over time.
It’s unclear when the market will recover, but it’s managed to bounce back from every single downturn in the past. To prepare for the upcoming bull market, the best thing you can do right now is invest in quality stocks and hold them for the long term. Over time, you could earn more than you might think.