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In this photo provided by the New York Stock Exchange, trader Michael Conlon, right, works on the floor, Tuesday, Jan. 25.Allie Joseph/The Associated Press

Where is the stock market heading? That can be an urgent question — especially when you are losing money in a fickle market.

As the wild stock market swings that started the week demonstrated, no one knows where the market is going, not hour by hour or day by day. What’s more, no one on Wall Street has been able to predict reliably where the market will be next month or next year, though plenty of people are constantly trying to do so.

Really, we are all in the dark, and when stocks are shaky, that is not a pleasant place to be. Yet there are compelling reasons to stay in the market.

A moment like this one, when the stock market’s perils are obvious, can be an opportunity — a time to figure out whether your investments are appropriate and to take action if they are not.

Recent losses follow colossal gains.

Stocks really have not fallen all that much — not when you consider how high they have gone.

Investor gains have been stupendous since March 2020, for example, when the Federal Reserve intervened near the start of the pandemic and set off a bull market. Through Jan. 3, when the recent decline began, the S&P 500 returned 114%, including dividends.

Stock returns have been marvelous over much longer periods, too. Since March 2009, when the Fed intervened during the Great Recession, the S&P 500 returned 762% including dividends through Jan. 3. Go back a bit further and you will find that in the 50 years from the start of 1972, the S&P 500 returned more than 18,000%.

It may help to keep that history in mind when you contemplate the recent market storms: If you had put $10,000 in S&P 500 stocks at the start of 1972 and just left it there, it would be worth more than $1.8 million today.

You can lose a lot of money in stocks, but bonds help.

The history of long-term market gains emphatically does not guarantee anything about future returns.

There is a dark side, too. Periods of excruciating losses known as bear markets are as much a part of stock investing as the far more enjoyable runs during bull markets. Losses much deeper than this month’s drop are virtually certain to occur if you hold stocks long enough.

Bear markets in the last 50 years included declines of:

  • 34% from February to March 2020
  • 57% from 2007 until March 2009
  • 49% from 2000 until 2002
  • 34% in 1987
  • 27% from 1980 to 1982
  • and 48% from 1973 to 1974.

I have owned stock through several of those miserable periods. It was not fun. But owning bonds helped to buffer the pain.

For the most part, high-quality bonds, especially U.S. Treasurys, have performed well when stocks have declined. The more stocks scare you, the more likely it is that high-quality bonds will be soothing. Knowing that you own these reliable assets may even help you hold onto the stocks in your portfolio.

You can do this by owning a fund that contains both stocks and bonds, like target-date funds, which are designed for people saving for retirement and tend to become more bond-heavy over time. Even simpler are indexed balanced funds, portfolios that track the stock and bond markets and maintain a steady allocation over long periods. Both varieties of funds rebalance for you automatically — meaning they achieve a desired allocation to stocks and bonds by selling stocks (or bonds) when they are high and buying them when they fall in value.

Portfolios containing both stocks and bonds tend to be far less volatile than pure stock investments. That can be a very good thing when the stock market’s lurches become gut-wrenching.

The Vanguard Balanced Fund provides a clear example. Like most of the giant asset management firm’s offerings, it is based on plain vanilla index funds. The fund’s biggest loss in recent years was 12.3% from Feb. 1, 2020, through March 20, 2020, during the coronavirus downturn, according to Morningstar, a research firm known for its ratings of mutual funds. That may not look good until you compare it with a decline of 28.3% for the S&P 500 during the same period, including dividends.

That Vanguard fund contains 60% stock and 40% bonds, which is about right for me. But if that seems too volatile, hold more bonds; if it is too stodgy, add stocks, particularly those from elsewhere in the world.

But by all means, choose an asset allocation and stick with it. Check whether your current allocation is out of whack.

The bull market may have swelled the proportion of stocks in your portfolio inordinately. If that is the case, rebalance. Sell some high-value stocks and put the money into bonds. Later on, if the stock market falls, you can sell some bonds to buy stocks. Better yet, let a balanced fund (or a target-date fund), do it automatically.

Diversify with cheap index funds.

Diversified, low-cost, broad-based index funds, which mirror the overall market, are a much safer way to invest in stocks and bonds than buying individual securities.

If you pick the right stock — say, Apple — and hold it for decades, you will outperform any index fund. Since 1989, the numbers show, Apple’s returns are about 20 times greater than those of the S&P 500.

But picking and holding a stock like Apple from the beginning is exceedingly difficult. Apple was a miserable stock through much of the 1980s and 1990s. Would you have known to stick with it when it was near bankruptcy? I did not.

Furthermore, unlike Apple, roughly 96% of the securities in the U.S. stock market do not earn money for investors at all over long periods, according to research by Hendrik Bessembinder, a professor of finance at Arizona State University. Bessembinder has since found that in global markets, too, most stocks will not earn you money over the long run.

Broad, low-cost index funds take care of these problems. You will own little pieces of a lot of mediocre stocks, but the winners have pulled the indexes higher, regardless.

None of this guarantees that you will make money in stock funds, however.

After bear markets, U.S. stocks have always come back and redeemed their losses. But that might not be true forever.

After all, the Japanese stock market has not yet recovered from a decline that began in 1989. The United States has many advantages, but that predicament could arise here one day. That is a reason for diversifying globally. At a minimum, it is quite possible that other markets will be better in the years ahead.

Knowing these risks, I continue to buy broad, low-cost, stock-and-bond index funds with every paycheck, even when the market seems to be going crazy. When share prices fall, I remind myself that I am buying more cheaply this month and hope for substantial gains down the road.

These are bets, not a rock-solid foundation for the future. But the bonds are more reliable. If you are deeply troubled by stocks, perhaps you do not own enough bonds. I find they give me peace of mind.

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