What To Do When the Stock Market is Crashing?
Would we see a dramatic decline in stock prices across a major section? Will the stock market crash this year or the coming year? Telling you without a crystal ball, we do not really know. But what we do know is that we can always prepare for a crashing market. It is more like having the playbook all filled in before the match. In general, crashes usually occur when there is a prolonged period of rising stock prices (bull market) and excessive economic optimism around.
There can be times like wars, large corporate hacks, changes in federal laws regulations, or even natural disasters. But we could never say which would be the cause or if it would even be a cause of a stock market crash.
Yes, this is a possibility that may or may never happen, which no one could ever predict. You may wonder why you need to prepare for something that has such extreme incidents. But it deals with your wealth and portfolio which comes under your security responsibility.
How to Deal with a Stock Market Crash?
A crash does not necessarily have to be bad for you if you have dealt with it right. We know, stock market pullbacks and crashes can seem frightening, but you are worse off if you are just going to depend on a savings bond or retirement plan without investing in stocks because a crash frightens you. Wealth is about investing; on the whole, you need to find a way of multiplying it.
They said, here are some things you can check off on the list, just in case of a stock market crash.
10 Points Checklist
1. It happens, so Just Breathe:
The first thing you can do is ‘not panic.’ Just breathe and realize that this is part of the long-term investment process, and you cannot panic sell. You need to pay a price for everything you earn and investing is the biggest wealth creator worldwide, and a crash is also a by-product that you need to deal with. Panicking and stressing over it would lead to more mismanaged stocks in your portfolio.
2. Know your Appetite for Risk:
There are roller coaster moments in the stock market, and the downturns are eventually overshadowed by long periods of sustained growth. That is the reality, so keep today’s storm in context. But you know, if only our brain only accepted all of it and did not emotionally react, right? Investing in the stock market comes with a by-product that is a risk. But what makes winning in the long term? It is the ability to ride out the unpleasantness and remain invested until eventual recovery. You would be able to do this if you know your volatility and how much you are willing to stomach in exchange for higher potential returns.
3. Reassess your Holdings (Remember to Take your Time Doing This):
Assess it! Is it worth selling your stake or reducing your position? You do not have to wait for a crash to crop up to panic sell or assess your holdings. Evaluate whether or not your initial investment thesis still holds water in it. In many instances, the reasons you bought a stock in the first place are unlikely to be altered by a stock market crash or correction.
4. You Need to Ignore Emotion-Driven Moves:
We would never know what would cause a stock market crash in the future. It can be anything. But you know what’s the biggest driver of a crash? It is not the news or the factor alone, but it is the emotion-driven panic of short-term traders. We can never control how other investors react to the stock market crash. But what we can actually do is to lean on history and investment research. It can tell us that crashes and corrections are often short-lived. So you can just ignore the raw emotion that arises in the forefront before anything else. You need to keep in mind that it is essential to look long-term.
5. Have Ready Cash to Take Advantage of Discounts:
Be ready to go shopping at the moment. Every crash is wiped out by a bull market rally. It merely means every dip in history has proved to be a buying opportunity. Now is when you can find discounts and undervalued stocks that would work well, and you should be leveraging them.
6. Avoid Margins:
Other than letting your emotions, the other thing would be to leverage your buys with margin. Buying on margin puts you at risk of losing more than your investment. You would be forced to pay interest on money that you have borrowed.
7. Nibble Often Because No One Can Time the Bottom:
The most asked question in a crash is, “when should I buy?” The answer to that would be ‘often.’
Recently brokerages have gotten rid of trading commissions, allowing investors to buy shares. You can drop $5,000 with your favorite group of stocks or invest $5 into a fractional share of Amazon. Since no one can predict how steep the decline would be or how long the crash would last in time, it best to keep nibbling around when they occur.
8. Add to Winners:
When panic selling comes into the picture, leaning on your outperformers should give your portfolio a better chance to thrive when the bull market takes shape. It is better to add to your winners over doubling down on your losing investments. The winning stocks are winners for a reason, aren’t they? They are the ones that are innovative and often have a competitive advantage.
9. Dividend Stocks! Buy Them. They Have Proven to be Winners:
Don’t overlook dividend stocks, terms of categories to buy during a crash. Companies that pay dividends are almost always the ones that are profitable and have time-tested the operating models.
10. Do Not Ignore Value Stocks:
Value stocks are a clever addition to your portfolio, especially when the stock market isn’t doing that well. Value stocks are some that outperform growth substantially in the early stages of an economic recovery.
The Takeaway:
Knowing what exactly to do when the stock market is going down is quite critical for an investor. Yes, a stock market crash can be mentally and financially devastating, especially for the inexperienced. But just keep in mind, panic selling and struggling to get out of the situation is only going to put your portfolio into bad shape.
