3 Ways a Market Downturn Could Affect Your Investment Returns

goeasy stock looks like an excellent stock to add to your portfolio if you are worried about the impact of a market downturn on your investment returns.

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Caution, careful

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Stock market investing undoubtedly comes with a fair share of capital risk. However, not even the most seasoned investor wants to lose their money in the stock market. The threat of a severe market crash can still send shivers down the spines of investors who have already been through harsh operating environments before.

Even a major correction in the stock market can be devastating for investors. As the stock market continues its bull run past mid-September, people might have started speculating when the next downturn will happen.

Today, I will discuss three ways a market downturn can negatively impact your returns and how investing in the right growth stock could be an excellent way to mitigate your losses.

1. High reward comes with a greater risk

You should know that stock market volatility never truly goes away. Many stock market investors tend to pick exciting stocks that offer stellar growth during bull market environments. If a market goes through a correction, the riskier companies tend to fall sharply. The goal is to find a company that can offer decent growth without adding too much risk to investor capital.

2. Investing more than you can afford

Some stock market investors tend to go overboard and put themselves at too much risk by getting greedy during bull markets by borrowing money to get the capital to buy more stocks. Borrowing capital to invest can provide you with significant returns. However, a major correction in the stock market could cause you to lose money.

It is better not to incur debt to get investment capital. Better yet, you should focus on investing only what you can afford to lose.

3. Selling in a panic

As the February and March 2020 market crash showed, a downturn can lead to many investors selling their investments and running away from the stock market. Impulse selling results in an even greater decline in the market. You should expect that to happen, but if you have a long-term view, you should not let it faze you and unnecessarily sell a good investment.

History has shown that high-quality stocks can recover from stock market crashes. A company with weak fundamentals and that cannot adapt to the changing market landscape can crumble and go belly up. Picking the right growth stocks with solid fundamentals could mitigate that risk to your capital, even if the stock faces short-term challenges in a downturn.

Consider investing in a high-growth stock

goeasy (TSX:GSY) stock is an excellent example to consider if you are looking for a high-growth stock with solid fundamentals. The market crash in 2020 saw its share price decline by over 60% in a matter of weeks between February and March 2020. At writing, the stock is trading for $209.35 per share, up by over 600% from its March 2020 low.

The subprime lending company has become popular among consumers as an alternative to traditional lenders. Over the last 20 years, the company’s share prices have appreciated by almost 8,900%. The company has recently become the go-to provider for non-prime leasing and lending services during the pandemic, and it has the potential to continue providing stellar shareholder returns through its reliable business for years to come.

Foolish takeaway

Minimize the risks while maximizing the gains for the long run is the ideal way to go if you want to become successful as a stock market investor. Having a long-term view of the investments you pick for your portfolio today is crucial to achieving your financial goals.

goeasy stock has been one of the most terrific growth stocks amid the pandemic, and it looks well positioned to continue doing well for years to come. Investing in a stock like goeasy without letting short-term craziness in the stock market spook you could set you up for stellar long-term wealth growth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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