How S&P 500 Index Funds Can Protect Your Investments in a Bear Market

This post was originally published on this site

It’s been a rough year for investors, with sky-high inflation, increasing interest rates, and recession concerns wreaking havoc on the stock market.

Despite the rally over the past few weeks, major indexes are still down significantly from their peaks earlier this year. Some experts also warn that this bear market isn’t over, and there is a chance that we haven’t seen the worst of it just yet.

While that uncertainty can be difficult to stomach, there’s one type of investment that’s almost guaranteed to rebound from whatever the market throws at it: the S&P 500 index fund.

How an S&P 500 index fund can protect your money

People are also reading…

An S&P 500 index fund is an investment that aims to mirror the S&P 500 index itself. That means it includes the same stocks as the index, which are stocks from 500 of the largest, strongest companies in the U.S.

In the short term, it’s possible that your investments could take a hit if stock prices fall. No investment is immune to volatility, and S&P 500 index funds are no exception. Over the long run, however, it’s extremely likely this investment will see positive average returns.

The S&P 500 has experienced countless crashes, bear markets, and recessions in its history. In the last two decades alone, it’s faced the dot-com bubble burst, the Great Recession, a crash in the early stages of the COVID-19 pandemic, and dozens of smaller downturns in between.

^SPX data by YCharts

Despite everything, though, it has seen consistent growth over time. And because S&P 500 index funds track the S&P 500 itself, they are also very likely to rebound from slumps and earn positive average returns.

While nobody can say for certain how long this downturn will last or whether stock prices will fall in the future, S&P 500 index funds are one of the safest investments out there.

The easiest way to survive a bear market

When the market is volatile, it’s normal to feel concerned about your investments. While an S&P 500 index fund is more likely to recover from a downturn, it’s also important to have the right investing strategy.

Fortunately, it’s easier than you might think to survive a market slump. In fact, sometimes the key to keeping your money safe is to simply do nothing.

Nobody — even the experts — can predict exactly how the market will perform over the coming weeks and months. But we know that it will recover from downturns over the long term. The best thing you can do, then, is to continue investing consistently regardless of what the market is doing.

In other words, don’t try to sell your investments at just the right moment, don’t stress over when is the right time to start investing, and try to avoid getting caught up in the market’s day-to-day fluctuations. Simply continue investing like normal, and stay focused on the long term. Even S&P 500 index funds may lose value in the short term, but they will recover eventually.

The stock market can be intimidating at times, but investing is one of the most effective ways to generate wealth. While no investment can avoid volatility altogether, S&P 500 index funds are a safer option and can protect your savings as much as possible.

10 stocks we like better than Walmart

When our award-winning analyst team has an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now… and Walmart wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

Stock Advisor returns as of 2/14/21

The Motley Fool has a disclosure policy.