The One Rule Investors Must Remember If Recession Looms

Market sentiment is turning increasingly bearish, with recent surveys showing 43% of investors feeling pessimistic about the next six months—up from 39% just a week earlier. With Federal Reserve Chair Powell noting the combination of stubborn inflation and a weakening labor market, recession fears are mounting despite no official downturn yet.

Here's the critical rule every investor needs to internalize: you don't lose money in the market until you sell.

During market downturns, your portfolio will inevitably decline in value. Stocks often plummet during recessions, making your investments worth less than your purchase price. But this decline remains theoretical until you actually sell those assets at depressed prices.

Consider this simple example—you buy a stock at $100 that later drops to $70. If you panic and sell, you've locked in a $30 loss. But holding through the volatility until recovery means you might eventually see that $100 value return.

History offers compelling evidence for patience. Take the Great Recession—the most severe economic crisis since WWII. The S&P 500 crashed over 50%, devastating many portfolios. Yet investors who stayed the course saw the index surge 63% in the decade following October 2007. Today, those same investments would be up a staggering 315%.

The key to weathering any recession is building a diversified portfolio of 25-30 quality companies across various industries. This strategy helps insulate you when weaker businesses fail to recover from economic stress. While flashy stocks might thrive in bull markets, economic downturns often expose their fundamental weaknesses.

No one can predict precisely when the next recession will hit or how severe it might be. But the market has recovered from every single downturn in history. By investing in strong companies and holding through turbulent periods, you position yourself to benefit from the inevitable recovery rather than locking in losses at the worst possible moment.

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