If the market crashes, you may want to consider buying more stocks you already own.
Gasoline prices soar due to US-Israel war with Iran
The jury is still out on whether we are heading into a recession, but the risks are very real.
A big mistake many investors make is trying to time the market. Get in at the right time and get out before things get worse. It sounds so simple, but it’s actually easier said than done. Markets can be incredibly unpredictable. This time last year was a perfect example of how reciprocal tariffs rattled the S&P 500 index. (SNPINDEX: ^GSPC)after which the index only skyrockets.
Currently, investors remain concerned about the possibility of a market crash. Oil prices will soar, inflation concerns will rise, and interest rates may fall sharply. risingat least temporarily. Moreover, there is a war going on in Iran. There are many reasons to be concerned about the stock market these days.
However, exiting the market and waiting for a better time to buy back may not be the best option. Instead, you may need to consider that the average will fall if the value of your investments falls.
Why lowering the average can be a good strategy for long-term investors
If the market crashes this year, your best bet may be to simply buy. more shares As prices become less valuable and you buy more goods, your average cost goes down, potentially resulting in higher profits in the long run.
This is a good strategy to deploy over the long term as it allows you to continue investing in the stock market. And barring a market crash, that’s great. That’s because your investment may increase in value and you won’t have to regret selling. However, if stock prices crash, the stocks you own will technically become more attractive to buy at a lower price. As long as nothing fundamental has changed about the stock itself or its earning potential, buying more stocks and lowering the average can be a great move.
The key is to average down only high-quality blue-chip stocks.
Downward averaging works well if you are invested heavily in stocks, which are generally safe investments to begin with. If speculative or meme stocks crash, safer blue-chip stocks may not be as likely to recover as these types of investments. So before you average down, it’s important to make sure the stocks you want to buy additionally have strong fundamentals and promising growth prospects.
David Jagielski, CPA has no position in any stocks mentioned. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner providing financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
