Highs and lows are an invariable aspect of stock market investing. However, there’s one question on every trader or investor’s mind. What to do when stock market crashes? The answers are many but it is important to keep in mind that you would need to keep yourself well-informed about the market and not make random decisions.
So, what to do if market crashes?
– The first thing to do is not to turn emotional when it comes to decision making. If you are a newbie who has never experienced a crash or a downtrend, it may be unnerving. But collect yourself and don’t take to panic selling.
– Assess your portfolio. The answer to the question of what to do in a stock market crashis to visit your portfolio and review your investments. It doesn’t take a stock market crash for you to do so but this is as good a time as any to do some reviewing. It’s time to introspect why you bought stocks of a particular company. If the answer is based on solid reasons, a stock market crash or a couple of bad patches shouldn’t lead you to do away with the stocks. On the other hand, if the very reason for your investing in a particular stock is no longer applicable, then it may be a time to sell. Make sure your investments are all in companies that are fundamentally solid.
– Think long term. Past examples show that markets invariably bounce back stronger and higher after a crash. Adjust your portfolio if need be and stick to your long-term investment goals. Be in a good position when the market rebounds instead of selling off your holdings.
– The key rule of investment is to look at your specific goals, risk appetite and investment horizon. As long as you keep your eye on these aspects, a crash shouldn’t affect you drastically. Typically, before you started your stock market investment journey, you have analysed your risks and have profiled your appetite and tolerance for the same. If not, you may need to quickly take a look at that. What is the level of volatility you can handle to enjoy a certain level of returns?
– Also, consider buying a few stocks which you wanted to and were expensive before the pullback. If you are still thinking about what to do if market crashes, this is one aspect you could consider. What are the companies that have products or solutions that have a strong potential for sales not just now but in the future as well? Are they worthy of more research leading to potential investment? Check out their growth rate and their place in the market. See if these stocks are fundamentally strong and see if you can invest in them. There could be some really good companies you have always admired or believed in and this could be the time to make tiny investments at a discount.
– Have some stocks that lend a certain amount of stability to your portfolio. While growth stocks are great, it’s also time to balance your portfolio with some stocks that offer a steady dividend or stocks that belong to consumer-oriented companies whose products are always in demand, irrespective of how the economy is doing.
– Having a steady balance of growth stocks and these stable stocks should help. Also, ensure that the stock market is not the only place you are investing. Make sure that there is a diversification in your investment portfolio, with other asset classes. Still thinking of what to do in a stock market crash? Ensure a good risk-reward balance and asset allocation in your investment portfolio. So, you could have stocks, bonds, cash and commodities to make sure they keep your finances in balance in case of a stock market crash.
– Always remember to do your research and keep yourself updated about the economy and the stock market behaviour. Learn about the stocks you already own but also keep your mind open about emerging sectors or those companies that have very good fundamentals. If you are a beginner and have not seen a market crash before, and are experiencing one for the first time, use this experience to build a solid investment portfolio. The crash may offer you excellent insights that help you build a financial roadmap for the future.
Every stock market crash offers you a chance to introspect, assess your portfolio of stock and remind yourself why you invested in some companies in the first place. Don’t let emotions rule you and dictate what to do when the stock market crashes. Continue to think long-term and keep track of your investment goals, horizon and risk profile. As long as your fundamentals are strong, you don’t have to worry about a stock market crash.