Worried about a market sale? 3 valuable tips.

The S&P 500 and Nasdaq Composite Index got off to a fantastic start this year. By mid-July, both widely watched indexes were up about 20 percent. They’ve taken a bit of a breather in the past month, though both have recovered slightly.

Cases like this can certainly be worrying for even the most experienced investor. If you’re worried about another market sell-off, here are three valuable tips. They should help reset your perspective and get you back on track to achieve long term investments objectives.

1. Sales are par for the course

The stock market is one of the best arenas the average person has for building lasting wealth. Historically, the S&P 500 has produced an average annual return of 10%, meaning you’ll double your money roughly every seven years. This is a wonderful result.

But it’s never a smooth ride. Volatility it’s something that all investors have to deal with if they want to make money over the long term — the mood of market participants is always changing.

I’m paraphrasing a bit here, but Giverny Capital, a Canadian investment manager, has a rule of thumb. It states that once every three years, expect the market to experience a 10% discount.

There have been many declines in recent years, all for various reasons. Whether it was the 2020 pandemic, the rapid rise in interest rates in 2022, or a turnaround in tech stocks in 2024, negative headlines will always pop up occasionally.

Understanding that sales are a normal occurrence can help you stay calm whenever they happen.

Image source: Getty Images.

2. Don’t panic

When you see red ink on your brokerage account, it can be hard to accept. Our instincts might kick in and force us to panic. Consequently, we may end up selling our holdings to avoid further losses.

This is a big mistake. To be clear, trying to successfully time the ups and downs of the market is a losing proposition. No one can do this consistently, no matter how smart the idea sounds.

In fact, you’re probably doing more harm to your portfolio. According to data from JPMorgan Asset Management, if you missed the S&P 500’s 10 best trading days during the 20-year period ending in late 2023, your annual return of 5.5% would be significantly less than the gain of 9, 7% if you just kept and stayed the course.

To make matters even more difficult is that the market’s best days often follow its worst. Getting in and out of the stock is not the right move. At the end of the day, time in the market matters most. Resist the urge to quickly throw away your possessions out of fear.

3. Consider being a buyer

“Be fearful when others are greedy and greedy when others are fearful,” the great Warren Buffett is famous for saying. Part of what he means is that market corrections, while usually fraught with worry, are actually the best times to put money to work and buy stocks.

You already understand that sales are normal. And you’ve decided you’re not going to panic and sell your positions. The next step is to consider whether you should buy stocks.

If you have cash lying around after you’ve established an emergency fund and paid off all high-interest debt, then use the gap to play offense and allocate more capital. The market has historically risen over long periods.

The next time the market has a period of weakness, remember these three tips.