The Nasdaq Is Officially in a Bear Market. Here's Why History Says Investors Shouldn't Panic.

The Nasdaq Composite (NASDAQINDEX: ^IXIC) is officially in a bear market. While it had been floating around in correction territory for a few weeks, it fell more than 20% below its all-time high after President Donald Trump announced his new tariff plan on April 2. Trump announced new tariffs on more than 180 countries, with the amounts varying from 10% to 99%.

Some of the more noteworthy tariffs were put on imports from countries like China, Taiwan, and Vietnam, which many tech companies rely on. That's why investors have grown extra cautious of the tariffs' effects, and the tech-heavy Nasdaq Composite has experienced harsher drops than other major indexes like the S&P 500 (SNPINDEX: ^GSPC) and Dow Jones (DJINDICES: ^DJI).

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Although stock market crashes are nerve-wracking, the silver lining is that history shows that investors shouldn't go into full-blown panic mode. Let's take a look at why.

The Nasdaq has been here before

For better or worse, the Nasdaq isn't new to bear markets. Including the current bear market, the Nasdaq Composite has experienced five bear markets since 2000. Below are the bear markets and roughly how much the index dropped during that time:

Source: YCharts. Current bear market percentage decline as of April 4, the recent low point.

Part of being a sound investor is understanding that bear markets are a natural part of the stock market cycle. Since the Nasdaq Composite was launched in February 1971, it has experienced nine bear markets. Despite that, the index has been a great long-term investment.

Using 15,600 as the Nasdaq Composite's point level (the amount at the time of this writing), here's roughly how much the index has increased since the end of each of the above bear markets (excluding the current one):

• December 2022: 45%
• March 2020: 127%
• March 2009: 1,085%
• October 2002: 1,280%

A good way to invest in the Nasdaq Composite during this time

If you're interested in investing in the Nasdaq right now, I'd consider going with an exchange-traded fund (ETF) like the Direxion NASDAQ-100 Equal Weighted Index Shares (NASDAQ: QQQE). This ETF mirrors the Nasdaq-100, a subset of the Nasdaq Composite that only tracks the 100 largest non-financial stocks on the Nasdaq stock exchange.

Although this ETF contains the same stocks in the Nasdaq-100, it's equal-weighted, meaning your investment will be spread equally among all the companies instead of spread based on companies' market caps, as is the case with the standard Nasdaq-100.

Since the standard Nasdaq-100 is market-cap-weighted, mega-cap tech stocks account for a huge portion of the index, and that has taken a toll on it since those have been some of the most affected by the response to Trump's tariff plans. Apple, Nvidia, and Microsoft make up over a quarter of the index by themselves.

QQQE data by YCharts

It's always risky to keep the bulk of your investments in a handful of companies, so the equal-weight Nasdaq-100 ETF provides a way to invest in the Nasdaq without relying too much on big tech and the "Magnificent Seven" stocks.

You don't have to invest a large lump sum right now

With all the uncertainty surrounding the economy and stock market right now, I wouldn't advise you to invest a lump sum, even if you're interested in investing in the equal-weight Nasdaq-100 ETF. Instead, I would use dollar-cost averaging.

When you dollar-cost average, you decide on an amount you can invest and then put yourself on an investing schedule to invest that amount at regular intervals. For example, if you decide you want to invest $1,000 total in the ETF, you could divide your investments into 10 $100 investments, four $250 investments, two $500 investments, or whatever makes the most sense for you.

By dollar-cost averaging during times of high volatility, you reduce the risk of investing a lump sum before a market drop and help offset some of the negative effects of a highly volatile market.

Remember: Your focus should be on the long term. Don't let bear markets or down periods discourage you from investing. Just approach it with a slow and steady mindset and trust that in the long run, you'll be glad you took advantage of current falling prices.

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Stefon Walters has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.