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 (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.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

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 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).

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 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.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $309,972!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $40,573!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $512,338!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

Continue »

*Stock Advisor returns as of March 18, 2025

Stefon Walters has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.