Three major worries emerge after S&P doubles
The S&P 500 index has risen 100% since early 2023, with AI-related stocks such as Nvidia, Micron and Microsoft as the main drivers. As the market keeps hitting new highs, investors' worries about a sharp decline have also risen, and the word crash is back on the table.
Market worries come mainly from three areas. First, tech giants are pouring large sums into building AI infrastructure, and once overinvestment occurs, it could drag down earnings and share prices. Second is the rate environment, the Federal Reserve held rates steady at its latest meeting, but inflation concerns have not faded, according to the CME Group FedWatch Tool, the chance of a rate hike in December is as high as 83%, higher rates will raise corporate borrowing costs and could also divert funds toward bonds. Third is elevated index valuation, with the S&P 500 Shiller P/E ratio approaching historic highs.
First strategy: Extend holding period to at least five years
Investment media outlet Motley Fool notes that crashes are a normal part of market cycles, and even if optimistic about the outlook, the related risks should not be ignored. The first strategy is to invest from a long-term perspective, aiming to hold for at least 5 years when buying stocks, so that most declines or crashes are barely noticeable in long-term performance.
History shows the S&P 500 has rebounded every time it emerged from a trough, and as long as financially strong companies are selected, there is a chance to repeat the same pattern. The point is not to predict when a crash will occur, but to establish a plan for long-term holding at the time of investment.
Second strategy: Buy quality names on dips
The second strategy is to buy quality names on dips during a market crash. When the market plunges, many good companies' shares fall to reasonable or even very cheap levels, and although most investors lack the appetite to buy at that time, it is exactly the right time to pick stocks.
The article argues that even if share prices keep falling after buying, there is no need to panic, as long as the plan is to hold for several years, generous returns may still be achieved in the end. No matter when a crash arrives, entering when valuations fall and focusing on long-term positioning will allow market volatility to be faced with a calm mindset.