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However you look at it, we are in a market downturn. There is still speculation as to whether this is a full-on recession or just a correction after a long period of up and to the right.
Regardless, investing in the market is a lot scarier when you see everything down. Recessions scare off many would-be investors, thinking they will wait for a better, more positive time.
So, should you? The short answer is yes. Here's why.
Everything Is on Sale!
The biggest reason to invest during a downturn is that companies are on sale.
When you go to the store to buy something you planned to purchase and see it marked down, you get excited, right? It is still the same product as before, just for a lower price due to external factors. You would jump on that opportunity and see it as a bargain.
Yet, when people see the same companies they always see for a lower price on the stock market, they get fearful. They think the market or company is failing, and they don't want to be on that sinking ship.
Instead, think of that company as just another product. You are buying into the same company you believed in otherwise, but now for an even better price.
Recoveries Always Happen
Historically, the market always recovers. Over any given 20-year period, the market increases. And that's just the worst-case scenario. The average annual return is still 10%, even with long periods of struggle.
There is no way to know what will exactly happen in the near future. But I feel pretty confident it won't be any worse of a downturn than The Great Depression or the 2008 housing crash. Thus I feel confident that the market will recover.
Buy Low, Sell High
Then, when it recovers, those who invested during the downturn will have set themselves up for a massive recovery.
As you invest during a downturn, your "cost basis" or average price paid decreases. For example, if you buy one share of a stock at $100 and then another when it drops to $50, your cost basis is $75. Then when the stock recovers back to $100 and breaks even, you're now up $25.
If you had instead tried to time the market and waited until the stock fully recovered, you would be missing out on those gains. This is exactly what happens to most investors who wait to invest until after a downturn. They miss out on the opportunity where investors are supposed to generate most of that average 10% return.
A Note
An incredibly important detail here is the quality of the company. Market downturns happen and indicate little to nothing about the underlying companies. The economy may be struggling as a whole, but if the data and leadership behind a company stay steady, the company is worth sticking with.
If, however, the stock is falling due to internal changes, that is a separate issue. For example, if a company gets a new questionable CEO and the stock falls along with revenue, this could indicate a downturn it won't recover from.
Only invest during downturns where the underlying qualities of the company stay steady.
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