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Investors may be suffering from whiplash right now. The S&P 500 (SNPINDEX:^GSPC) climbed 1.6% the day after the midterm election, the best one-day performance for the index since August. The next day, the index plummeted 4.4%, the worst performance since April 2025. The Nasdaq Composite (NASDAQINDEX:^IXIC) saw an even steeper drop, falling 5.5% the day after the index climbed 1.4%.
The S&P 500 Volatility index, or VIX, climbed to 28, its highest level since April 2025, during the market sell-off. It's hard to maintain composure amid such high volatility. That's why the VIX is often referred to as the market's "fear index."
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But if that fear pushes you to sell or sit on the sidelines of the stock market, it could end up costing you. Here's what the data say about selling right now.
If you want to avoid volatility, there are quite a few options to grow your money with limited risk to your capital. Treasury bonds, backed by the full faith and credit of the U.S. government, will provide regular interest payments and return your principal at maturity. You only risk losing money on the investment if you sell the bond early. And while the returns are extremely predictable, they're also relatively low.
The stock market is much better at building wealth for investors over the long run. But that comes at a price.
Author and former Motley Fool contributor Morgan Housel popularized the idea that volatility is the price of admission to the stock market. If you want to generate excess returns above the risk-free rate of Treasury bonds, you're naturally going to have to endure more risk. That means more ups and downs in your portfolio's value.
Selling when volatility rises is a recipe for underperformance. The key to long-term investing is ensuring you have money invested during the stock market's best days over the 20 years. Missing the 10 best days in the S&P 500 over the 20-year period between 2006 and 2025 reduced the index's total return from 11% to just 6.6% annualized.
Importantly, the S&P 500's best days typically show up when volatility increases. J.P.Morgan analysts point out that six of the 10 best days in the S&P 500 from 2006 to 2025 occurred within two weeks of the 10 worst days in the S&P 500. So, selling when stocks have one of the worst days in two years means you'll likely miss a big rebound.
For investors still in the accumulation stage, volatility can present some great opportunities to deploy more cash. Five of the 10 best days in the market between 2006 and 2025 occurred the day after one of the worst days in the market. This suggests that acting decisively as stock prices crash and buying into the weakness is not just rewarded, but often rewarded immediately.
Of course, being able to act decisively requires positioning yourself to do so. If you're a passive investor focused on index funds, the best strategy is to systematically invest a part of your paycheck in your preferred index fund(s) at set intervals. If you have an opportunity to pull forward some of those investments amid a market crash, then it can often make sense to do so. While there's always the possibility the indexes move lower, there's a good chance markets rebound sharply.
For investors who like to buy individual stocks, maintaining a watch list and determining the price at which it makes sense to buy shares is essential. That said, a sudden drop in prices doesn't just happen for no reason. Ensure your investment thesis hasn't changed before buying into weakness in an individual stock.
That may or may not be the case with the recent sell-off, which appears tied to concerns about the continued proliferation of AI data centers amid a new political backdrop and financing challenges. Some companies are better positioned to withstand such hurdles than others, while many companies aren't directly impacted at all. Maintaining a clear understanding of the factors that influence a company's future financial performance is essential for making sound investment decisions amid market volatility.
If you can overcome market fear and view volatility as an opportunity, you'll achieve strong long-term results.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Stocks Had Their Best Day in 3 Months and Worst in 19 Months Last Week. Here's What the Data Says About Selling Right Now. was originally published by The Motley Fool
