Stock market sell-off: Here's why history says investors shouldn't hit the panic button

The U.S. stock market has had a rough start to 2025, with all three major indexes down through March 17.

| More on:
Unsure man analysing data on laptop.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The U.S. stock market has had a rough start to 2025, with all three major indexes (S&P 500, Nasdaq Composite, and Dow Jones) down through March 17.

The tech-heavy Nasdaq Composite is officially in a correction (defined by a drop of 10% or more, but below 20%, from recent highs), the S&P 500 barely escaped its short correction after a 2% one-day gain on March 14, and the Dow Jones is a couple of bad days away from joining them.

Needless to say, the stock market has seen better days. However, the opposite is also true; it has also seen much worse days. Although seeing your portfolio drop is never ideal, now isn't the time to hit the panic button. History tends to repeat itself, and that should encourage investors.

^SPX Chart ^SPX data by YCharts.

A natural part of the stock market cycle

Corrections and sell-offs are a natural part of the stock market. They've been happening since the stock market became what we know it as today, and you can bet that they'll continue happening.

The reasons for corrections and sell-offs vary. It could be economy-related, politics-related, irrational investor thinking, or a combination of a few things.

Instead of viewing them as setbacks (although they are in some cases), view them as speed bumps and approach them like opportunities to grab high-quality stocks and exchange-traded funds (ETFs) at a discount.

There have always been brighter days after sell-offs

You never want to use past happenings to assume it'll happen in the future in the stock market, but as I mentioned earlier, history tends to repeat itself. And in the case of S&P 500 sell-offs, history shows investors' wealth rebounded from down periods as stocks appreciated.

For perspective, here are the five largest S&P 500 corrections and bear markets since 2000 and how much the index has gained since the trough (the lowest point of the correction or bear market).

Peak Date Trough Date Percent Loss Number of Days Gains Since Trough
January 3, 2022 October 12, 2022 (25.4%) 282 57.6%
February 19, 2020 March 23, 2020 (33.9%) 33 152%
October 9, 2007 March 9, 2009 (56.8%) 517 733.5%
November 27, 2002 March 11, 2003 (14.7%) 104 604.2%
March 24, 2000 October 9, 2002 (49.1%) 929 626%

Source: Standard & Poor and YCharts. Gains since troughs will vary based on the viewing date.

You'll notice that no matter how much the S&P 500 dropped, it has managed to bounce back over the long haul. That's why it's important to keep a long-term mindset when investing and not get too worked up on short-term volatility regardless of how bad it may seem.

Does that mean the S&P 500 is guaranteed to bounce back this time? No. Is there a very good chance that it eventually does? Absolutely.

How I like to invest in the S&P 500

There are several ways to invest in the S&P 500, but my go-to is the Vanguard S&P 500 ETF (NYSEMKT: VOO) because of its low cost (0.03% expense ratio). This ETF is also a good example of long-term resilience.

Since it was created in September 2010, it's faced its fair share of corrections and down periods. Yet, its long-term returns are impressive.

VOO Chart VOO data by YCharts.

I consider this ETF the foundation of my stock portfolio, so I invest in it using dollar-cost averaging, which essentially involves putting yourself on a set investing schedule. It could be weekly, bi-weekly, monthly, or whatever makes sense for your financial situation.

More important than the frequency of investments is making sure you stick to your investing schedule regardless of how the stock market is performing at the time. Sometimes, you'll be investing when the market is rising; at other times, you'll invest when the market drops.

Since I believe in the long-term potential of this ETF, I don't pay too much attention to its short-term movements. Instead, I focus on investing in it consistently, resisting the urge to time the market, and trusting the power of long-term growth.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Stefon Walters has positions in Vanguard S&P 500 ETF.  The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Vanguard S&P 500 ETF. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

Man charging an electric vehicle.
International Stock News

Musk to step away from DOGE as Tesla shares miss the mark

Tesla has had a forgettable start to 2025.

Read more »

A little boy climbs in the green tree eating an apple to its core.
International Stock News

22% of Warren Buffett-led Berkshire Hathaway's $265 billion portfolio is invested in only 1 stock

Should you buy this stock right now? Understanding Buffett's thinking, as well as the current situation, could help you decide.

Read more »

A tech worker wearing a mask holds computer chip up to the camera.
International Stock News

Prediction: 2 artificial intelligence (AI) stocks that could be worth more than Nvidia by 2030

With the AI market valued at $189 billion in 2023, the United Nations believes it will become a $4.8 trillion…

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
International Stock News

If you buy Amazon with $10,000 in 2025, will you become a millionaire in 10 years?

Will a $10,000 investment in this e-commerce giant, which trades 29% off its peak, make you a millionaire by 2035?…

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
International Stock News

Should you buy Alphabet stock before April 24?

Alphabet reports earnings on April 24, and there are a lot of important things investors should be on the lookout…

Read more »

A man with a wide, eager smile on his face holds up three fingers.
International Stock News

3 reasons to buy Amazon stock like there's no tomorrow

Shares of the e-commerce behemoth are cheap for a reason that isn't likely to last much longer.

Read more »

Two boats on the water with crates with the words trade war in the middle.
International Stock News

Nvidia's China risk: Is it a red flag for investors?

Let's take a look.

Read more »

Woman and man calculating a dividend yield.
International Stock News

Apple vs. Meta Platforms: Which "Magnificent Seven" stock has more upside after the recent sell-off?

Here's the one with more upside, according to Wall Street analysts.

Read more »