Is a major stock market crash coming? 5 Things to do if the Stock Market crash again.
The consequences of the recent Covid-19 pandemic and Russia -Ukraine War on the world stock markets have been dramatic.
Major indexes collapsed and were down more than 20%.
This incredible situation has impacted all industries and sectors as well as many investment portfolios.
Many businesses have shut down, with a huge impact on the lives of many people and families.
Nobody can predict if situations like this can occur again in the near future.
So, here are 5 things to do during a stock market crash.
Stay calm and do absolutely nothing
If you want to achieve your financial freedom with a sound investment strategy with a bunch of broad-based, low-cost index funds you must simply stick to your financial plan: you have absolutely nothing to do.
If your current asset allocation is adequate with your plan, then cool down, shut down the TV, and stay away from all the toxic news that makes you going in panic.
Remember: Selling is NOT an option.
You will NEVER sell during a market crash.
Dancing in and out of the market during a stock market crash is for sure one of the worst moves you could make.
Every move you make in direct reaction to a stock market correction is a really bad idea.
Turn off your TV.
Listening to the various “experts’ opinions” about the stock market during a bear market situation can be really dangerous for investors.
Remember they are making money when they talk about your fears, so you don’t need to take those opinions as if they are the truth.
Plan your personal investment strategy and use these informations as a guide.
Risk Management in a stock market crash.
Use market downturns to evaluate the structure of your portfolio.
Your portfolio must be resilient to a bear market.
If you are overexposed to a particular asset class, and the bear market has blown a huge hit, you probably have to implement better asset diversification.
You have also to assess your portfolio’s performance. If you are not satisfied with your portfolio performance, maybe it is time to revisit your strategy.
Stocks for sale.
If you are looking for the right time to buy a particular fund, stock, or ETF before the market, market corrections are the best time to put money in the market.
I am a long-term investor so I don’t consider market timing as my first strategy, anyway if I note a good stock of a company with solid fundamentals, or a good performing ETF, usually take advantage of the lower price they have during a market correction.
Markets will always go up at some point.
Smart investors think for the long term and do not overreact in the short term.
Impulsive moves always cause bad investment decisions.
Analyze and correct your behavior before you go in panic and click on the “sell” button.
The stock market will always go up.
When you decide to invest your hard-earned money, first you need to understand a few things about how the stock market really works:
Expect market crashes.
Pandemics and wars have happened before and, for sure, it will happen again. And again. And again.
In almost 100 years we’ve had:
• World War 1 (1914-1918)
• “Spanish flu” epidemic 1918
• 1929 stock market crash and recession
• World war 2 (1939-45)
• Stock market crash and recession in 1974-75.
• Huge inflation in the late ‘70s/early ‘80s. (Mortgage rates were about 20%. 10-year Treasuries were paying about 15%).
• in 1979 “The Death of Equities” ( see the infamous 1979 Business Week cover)
• 1987: the biggest one-day drop in the stock market history.
• Early ’90s: recession.
• Late ’90s. : DotCom companies Crash.
• 2008: The subprime mortgage crisis
• 2009-2012 global financial crisis
• 2020: Covid-19.
• 2022: Russia-Ukraine War
The market will always recover.
After a big crash, there will always be a great recovery with a great bull market.
And, if someday it won’t happen, none of this financial stuff will matter anyway for the entire world.
In 1974 the Dow closed at 616. In the February of 2022, it was 34,058.75
If you invested $100 in the S&P 500 (a broader and more telling index) at the beginning of 1974, you would have about $18,148.92 at the beginning of 2022, assuming you reinvested all dividends.
This is a return on investment of 18,048.92%, or 11.42% per year.
3. The market always goes up.
Understand this is not a smooth ride, but a wild rollercoaster.
Do not worry about the major ups and downs.
In the end, it always goes up. If you do not believe me, take a look at any chart of the stock market over time. The trend is relentless, thru disaster after disaster, up.
The market is the single best performing investment class over time, and the next 100 years will have just as many collapses, recessions, and disasters as in the past.
Ignore the noise, stay the course and ride out the storm.
If you own a well-diversified, broad-based, low-cost index fund (e.g. SP500 or a Total World index fund), you can even buy more shares for sale.
So, if you’re struggling to figure out what you need to do during a stock market crash, it’s really simple.
Stay calm and surf the wave.
Interiorize and fully assimilate this concept.
You can for sure make some good money when there is a bull market and stocks are going up.
But what really determines if you’ll get rich or not, is what you do – and what you don’t- when the stock market takes a huge crash.
Hold Fast and enjoy the ride.