I’m really confused by how the stock market works. I’m reading all over the news that the market is crashing, yet nobody seems to know why. Investors sent Bitcoin way up and then let it crash way down. Just a week or two ago I was reading about record highs, and now I’m reading about record crashes. How is this such a mess? Why would anyone trust the stock market when it’s so volatile?
There’s no denying that it has been a rather rough few business days for the stock market. But that doesn’t mean that the economy as a whole is broken, nor that you should avoid the stock market for the rest of your life. While the stock market is capable of prolonged periods of decline, history shows that it generally increases in value, and investing remains the best way to build wealth.
You’re right that investment experts are openly admitting that they’re not sure why the market is behaving the way it is right now. And, in fact, that’s consistent with history: some argue that we still don’t really know what caused the 1987 crash, for instance. This can make the market seem pretty scary, but it’s not necessarily the end of the world.
A market drop like this can inspire a lot of people to take their money out of the market, causing further drops. But for young investors with many years in the market ahead of them, it may be best to simply keep investing. Attempting to “time the market” often ends poorly, but history suggests that steady investors will find that they’re able to weather multiple market corrections in their lifetimes and still come out ahead when all is said and done.
In fact, buying into the market during a downturn may be a good idea. Even the most volatile investments–such as the cryptocurrencies tracked by Buy Blockchain–are sometimes snapped up by savvy investors when the prices drop. Sure, they could keep dropping–but if the underlying investment is actually undervalued, then “buying the dip” is an opportunity to get into the market at a discount.
This isn’t to say that you should put all of your money in a risky investment right now, but it does suggest that following a steady and healthy investment strategy–even through dips–is the right way to build wealth. In the end, you don’t necessarily need to understand everything about the economy to build wealth through investing.
“An investment in knowledge pays the best interest.” — Benjamin Franklin