Investors Should Stay Calm Amid Nasdaq Correction
Earlier this week, the Nasdaq Composite entered correction territory, defined as a decline of at least 10% from its recent high, raising concerns among investors. It’s natural to feel anxious, especially with looming threats like trade wars and the possibility of an economic recession driving down stock prices.
Nevertheless, it is crucial that investors do not overreact by selling off all their stock investments. Recognizing that market corrections are a normal part of investing can help alleviate panic. Historical trends suggest that these tariffs and economic concerns may not persist long-term, but during periods of uncertainty, the market often reacts with selling before seeking clarity.
Market timing remains a difficult, if not impossible, strategy. Typically, predicting the exact ups and downs is not feasible. If we do experience a bear market, characterized by a decline of 20% or more, these downturns generally last less than 10 months on average. When the market begins to recover, stocks tend to rise swiftly. Historically, in the first month of a new bull market, stocks have gained nearly 14% on average, with returns exceeding 25% in the first three months.
Bear markets can also be short-lived. For instance, the bear market following the 1987 crash lasted just three months, while the downturn associated with COVID-19 lasted slightly over a month. I attempted to time the market during the initial COVID bear market, believing economic disruptions were imminent. However, the market reacted quickly and rallied before the full impact was apparent, leading me to miss out on significant gains.
Image source: Getty Images.
Strategies for Investors Moving Forward
The key for investors now is to avoid panic and approach this situation as a potential buying opportunity. Given the challenges of timing the market, I recommend a dollar-cost averaging strategy, where you invest a fixed dollar amount at regular intervals, regardless of market conditions.
If possible, invest a small amount each week as down-trending markets can shift rapidly. While pinpointing the exact market bottom and subsequent rally is typically unpredictable, dollar-cost averaging allows you to purchase stocks at favorable prices over time.
For this investment strategy, consider using an exchange-traded fund (ETF) instead of selecting individual stocks. The Invesco Nasdaq 100 ETF (NASDAQ: QQQ) serves as a strong option in this regard. This ETF includes the 100 largest non-financial stocks listed on the Nasdaq.
In fact, the ETF is heavily populated by leading technology companies, with about 60% of its index consisting of technology stocks. Additionally, it incorporates several significant non-tech stocks, such as Amazon and Tesla.
Here are the ETF’s top holdings and their respective weightings as of March 7, 2025:
| Holding | Weighting | Holding | Weighting | |
|---|---|---|---|---|
| Apple | 9.7% | Broadcom | 4.0% | |
| Microsoft | 7.9% | Meta Platforms | 3.7% | |
| Nvidia | 7.4% | Costco Wholesale | 2.8% | |
| Amazon | 5.6% | Tesla | 2.6% | |
| Alphabet | 5.3% | Netflix | 2.5% |
Data source: Invesco.
The Invesco ETF has demonstrated impressive overperformance historically. By the end of February, it had achieved a cumulative return exceeding 407% over the past decade, easily outpacing the 239% growth of the S&P 500 over the same timeframe. During this span, the Invesco ETF outperformed the S&P 500 87% of the time based on rolling monthly returns up to the end of 2024.
While you may not pinpoint the exact bottom of the market, this represents an optimal time to dollar-cost average into the Invesco Nasdaq 100 ETF, establishing a favorable cost basis as the market eventually rebounds.
Don’t Miss This Potential Investment Opportunity
If you think you missed your chance to invest in leading stocks, now might be your moment.
Occasionally, our expert analysts issue a “Double Down” stock recommendation for companies they believe will surge soon. If you’re concerned about having missed these investing chances, now is a critical time to act before moving forward becomes challenging. Consider these impressive returns:
- Nvidia: If you invested $1,000 when we recommended doubling down in 2009, you’d have $282,016!
- Apple: A $1,000 investment when we doubled down in 2008 would now be $41,869!
- Netflix: Investing $1,000 when we doubled down in 2004 would now be worth $482,720!
Currently, we are issuing “Double Down” alerts for three outstanding companies, and opportunities like this may not come around again soon.
Continue »
*Stock Advisor returns as of March 10, 2025
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development at Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is also on the board. Suzanne Frey, an executive at Alphabet, and Geoffrey Seiler, who holds positions in Alphabet and Invesco QQQ Trust, also serve on the board. The Motley Fool recommends Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla, and holds positions in these companies. It also recommends Broadcom and Nasdaq, along with specific options on Microsoft. The Motley Fool has a detailed disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily represent those of Nasdaq, Inc.
