Stay In, Keep Buying: The Best Days Hide Nearby
Thursday was the Nasdaq's worst day since April 2025. Here's what history says often comes next and how to make a rough market work for you.
On Thursday, the market took a significant tumble, with the Nasdaq Composite dropping 5.5%, marking its worst day since April 2025. This decline left many investors feeling uneasy, as they watched their portfolio values shrink. It's a challenging experience, regardless of the size of one's investment account. To alleviate some of that anxiety, it can be helpful to reflect on previous market downturns.
In early April of that same year, the Nasdaq saw a nearly 6% drop over two consecutive days due to new tariffs causing market turbulence. Following this dip, however, the market turned around and surged by 12% on April 9, marking one of its second-best trading days ever. By late June, both the Nasdaq and the S&P 500 had reached new all-time highs.
Had investors sold off in panic on April 4, they would have missed out on that impressive rebound. The timing of that drop was unexpected, occurring three trading days after the worst day. This scenario is not uncommon in the market. J.P. Morgan Asset Management's recent guide examined the 20 years leading up to 2025 and discovered that six of the market's ten best days occurred within two weeks of its ten worst days.
A $10,000 investment in the S&P 500 that remained stagnant grew to approximately $80,619. Conversely, missing just the ten best days would have left the investment around $35,866, representing less than half of its potential value. While past patterns cannot assure a swift recovery this time, selling after a day like Thursday implies trusting that one can re-enter the market before the best days arrive.
History suggests that this is a daunting task. If the strategy is to consistently contribute funds to stocks over the years, falling prices shouldn't be viewed solely as a negative. Instead, they present an opportunity to purchase more shares for the same amount of money. For example, if an individual invests $500 monthly in a stock priced at $100 per share, they acquire five shares.
Should the price drop to $80, the same investment would purchase six and a quarter shares. The underlying business remains unchanged; the investor simply receives more shares for their money. This concept holds true whether the monthly contribution is $50 or $5,000. As long as more shares are purchased than sold, lower prices can aid in long-term growth.
There's no need to wait for the absolute lowest point or search for hidden bargains. Maintaining regular contributions is sufficient. Additionally, a market downturn offers a practical advantage. Suppose certain stocks in a taxable brokerage account have depreciated below their purchase price. In that case, selling them locks in a loss, which can offset capital gains elsewhere.
If the losses surpass gains, up to $3,000 of the difference can generally be deducted from ordinary income each year, with any remaining carried forward. In retirement accounts, there is no tax consequence when trading. Therefore, it is an opportune moment to assess whether the portfolio's composition still aligns with the investor's plans.
While Thursday's market dip was painful, more volatile swings may lie ahead. However, the best days typically follow the worst ones. It's crucial to remain invested, continue adding to businesses one believes in, and utilize this downturn to optimize year-end tax strategies. For more comprehensive investment advice, consider subscribing to The Motley Fool's premium services.
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