Stock prices have
fallen sharply this week
As investors prepare for the likelihood of an economic downturn — potentially influenced by unpredictable tariff policies and a slowing job market.
During a Sunday appearance on Fox News, President Donald Trump
suggested there might be some short-term challenges ahead
There is an adjustment phase happening here since our actions hold significant importance,” he stated. “Our efforts aim at restoring prosperity within our nation, which is quite substantial… This process does require some duration; however, I believe it will ultimately prove highly beneficial for all of us.
When questioned about an impending recession, the President responded, “I dislike making such predictions.” He continued by saying, “We will face some disruptions, but we’re fine with that.”
The S&P 500 has fallen over 9% since reaching an all-time peak on February 19th, bringing stock values close to entering a correction phase, which starts with a drop of at least 10% from their highest levels.
Should it become more apparent that a recession is forthcoming, investors are likely to push things down even further. Just ask Berkshire Hathaway chairman and investing legend Warren Buffett.
He penned that it’s impossible to predict just how much stock prices might drop within a brief timeframe.
2017 letter to shareholders
But if a significant downturn happens, he went on to say, “pay attention to these lines” from
The renowned poet Rudyard Kipling’s timeless verse “If,”
circa 1895.
Should you remain calm when those around you are losing their composure… Should you endure patience without getting weary of waiting… Should you contemplate but refrain from making thought your ultimate objective… Should you believe in yourself even as everyone else questions you… Then the world and all within it shall be yours.
Why staying calm provides rewards
It should be mentioned that Buffett was referring to significant drops in the stock market, such as the bear market from 2007 to 2009 when the S&P 500 shed over half of its value.
These occurrences are significantly less frequent compared to what current investors are experiencing. Actually, downturns in the stock market happen rather routinely. Since 1980, there have been 21 instances where the S&P 500 dropped by at least 10%. On average, the decline within a year has amounted to about 14%.
as stated by Baird Private Wealth Management
.
Certainly, investors typically remain unaware of impending deterioration until it actually happens.
“In 2017, Buffett penned that no one could predict exactly when these events would occur. He added that the signal might shift directly from green to red without stopping at yellow,” he noted.
However, regardless of whether a downturn is minor and brief or appears prolonged and distressing, the advice for individual investors remains consistent: Adhere to your long-term strategy and keep up with investments.
Buffett states that he sees downturns as “exceptional opportunities.” The reason being, historically, the market has always regained its upward momentum after only a relatively short period.
Since 1928, a typical bear market, characterized by a drop of 20% or more from previous peaks, has usually spanned fewer than 10 months.
based on information provided by Hartford Funds
Within the span of several decades that you’re probably planning to invest, it amounts to virtually no time at all.
Even though going through this period might be frightening, focus on your ultimate objective: achieving your long-term aspirations. Persistently investing during market downturns allows you to purchase shares at reduced rates. Provided you adopt a diversified investment strategy, each drop in stock prices will improve your overall purchasing power over time.
As Kipling puts it, stay calm, disregard sensational headlines, and continue with what you’re doing. Will the Earth and all its contents belong to you? Perhaps not — but you will probably succeed in significantly increasing your long-term prosperity.
This sentiment echoes another statement made by Buffett regarding capitalizing on discounted investment opportunities, also originating from him.
2009 shareholder letter
Great chances do not present themselves often. When gold is falling from the sky, grab a bucket instead of a thimble.
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