From an investing perspective, these are often the periods where the S&P 500 can fall 20% or more. But if there's one thing I would tell investors about how to handle their portfolios during a recession, it would be this: Missed Nvidia in 2009? This Rare Signal Is Flashing Again.
In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » That's because recessions have historically produced some of the best long-term buying opportunities for investors.
If you're able, continuing with systematic investing plans allows you to buy shares at significant discounts to their previous levels. The catch is that you have to maintain that long-term perspective and avoid the temptation to exit stocks when economic conditions get tougher. If you sell when prices are already low, you not only lock in losses but you'll also likely miss out on an eventual rebound and recovery.
Think of it like this: If stocks hit an all-time high, drop 20% due to a recession, and then recover to recapture that high, your total return is 0% if you rode it all the way out from high to high. If you continue investing through the recession, however, you're continuously buying shares at prices well below that all-time high. By the time that a new all-time high is reached, your returns are sitting in positive territory thanks to the gains you've gotten from all of those individual buys along the way.
Recessions don't have to be scary events. If you view them as opportunities instead, you can enhance your long-term returns. Before you buy stock in S&P 500 Index, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P 500 Index wasn't one of them.
The 10 stocks that made the cut are built for long-term growth and could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $421,511!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,381,960!* That performance is why people listen. With a track record of beating the S&P 500 by nearly 5x, Stock Advisor offers a distinct advantage.
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