Despite the market’s multiple record-breaking highs over the last few months, many investors are growing concerned about potential volatility.
The Fear and Greed Index is a compilation of seven market indicators and measures investor sentiment on a scale of 0 to 100. At the extremes, 75 and over is classified as “extreme greed,” while 25 and under is considered “extreme fear.” After peaking at 71 in early May, it sits at 25 as of this writing.
While this does suggest that investors may be exercising more caution right now, it does not mean a market crash or recession is around the corner. No matter what may be coming, though, investing expert Warren Buffett can offer nervous investors some reassuring advice.
Image source: The Motley Fool.
Uncertainty is not a bad thing right now
Perhaps the most nerve-wracking aspect of the market is the uncertainty. Nobody knows when the next downturn will begin, how severe it might be, or how long it might last. For investors wondering what to do with their portfolios right now, all of those unknowns can be stressful.
In a landmark 1979 opinion piece for Forbes magazine, however, Warren Buffett offered a reminder that the future will never be clear, and that’s OK. In fact, that can benefit patient investors.
“Uncertainty actually is the friend of the buyer of long-term values,” he noted, adding that investors who only buy when the market is thriving will pay the highest price. When stocks waver, that’s the ideal opportunity to snag normally pricey stocks at a discount.
With the S&P 500 (^GSPC 0.05%) down around 3% from its record high earlier this month and the Nasdaq Composite (^IXIC 0.24%) falling by more than 6%, right now could be a fantastic moment for savvy investors to load up on quality stocks. Not only will buying the dip save you money immediately, but it can also position you for long-term growth when stocks eventually recover.
The secret to building long-term wealth in the stock market
The last few months have been a historically expensive time to invest, as many stocks are not only high-priced, but overvalued, too. These stocks may surge in the short term but crash hard during a recession or bear market, making them risky buys right now.
To survive a downturn, it’s critical to invest in healthy stocks from companies with solid foundations. These stocks won’t always be flashy or the highest performers, but they will have the building blocks for long-term growth — such as healthy finances, a competent leadership team, and a competitive advantage over peers.
Market volatility is always a possibility, and it pays to prepare in advance. With a well-diversified portfolio of healthy stocks, investors can embrace the uncertainty and position themselves for long-term growth.
