In a market filled with uncertainty, there is going to be a risk of a market crash. Everyone who has ever invested lives with risks. But when you’re just relatively new to all these trials and tribulations, stock market corrections may come as a shock to you.
Prepare yourself for the range of emotions you will inevitably feel—from anger to confusion to wondering what in the world you should do next. And though it is okay to let these feelings exist, one thing you definitely should do is stay calm. As calm as you possibly can.
Under any circumstance, don’t make desperate decisions while you’re high on your emotions. Remember that in investment, there are two things you can’t be without: discipline and rationality.
You are not going to lose money as market crashes are temporary declines.
Here’s the harsh truth: major economic meltdowns happen. It has happened in the past and it’s sure to happen again. It’s not that history keeps repeating itself; it’s just that market crashes are part of the investment cycle. These downturns are part of getting the gains. In this game, things move differently; they take a different path and that’s okay.
Before we get into equipping you with the necessary information to survive a market crash, let’s first define what it is.
Defining a market crash
There are four things you have to watch out for when determining a bear market:
- Market crashes can lead to 30% to 60% in major indices
- Market crashes last for a while. One thing to note about a bear market is that it may remain in deep red for at least a year or so. However, because of the market’s fluctuating nature, there will be a few times where it will inevitably bounce back. These are short-lived though and may even lead indices further down.
- A bear market happens because of a poor economic outlook as a consequence of an overheated economy. Much like life, every economy undergoes its own cycle. It shows growth some years, and declines or remains subdued after. Market crashes are typically brought about by poor economic activity, lack of jobs in the market due to poor business performance, and, of course, high inflation.
- Much like any natural disaster, market crashes are extremely difficult to predict. We can only surmise their probability, but we cannot foretell with any accuracy.
Because of their ability to catch us off guard, market crashes can happen even when everything seems fine. It’s when we least expect it that something catastrophic can happen.
When investing, there is just so much unpredictability going on that at some point, you just have to get used to it. I know this all sounds bleak, but the stock market has always roared back up, reaching even higher highs than ever before.
Here’s how you can survive, or even thrive when the next bear market occurs:
Do Absolutely Nothing
In a market crash, the market isn’t your enemy. Observe yourself and your emotions as feelings are most often the biggest reason casual investors tend to underperform. As much as possible, keep your fears in check.
When you feel yourself doubting the decisions you are about to make, it might be best to just do nothing. When stocks drop, your gut reaction might be to act too quickly—and that’s almost always the wrong thing to do. In times like these, remember the two things we talked about earlier—be disciplined and be rational. See how the events pan out first.
What seems like a catastrophic turn of events today may shrink into a blip on the screen years after.
Stay calm and stop putting yourself through too much negativity. Avoid your brokerage accounts by deleting your app or blocking the website. Try to stop obsessing over the minute-by-minute value of all your investments.
Another thing to do is to stay away from financial news. This will only feed your fear and stir emotions that will hurt you instead of help you.
All things considered, the market crash you may experience might just be a short-lived anomaly. It will bounce back soon.
Think Long Term
Yet another way to keep your feelings at bay is to think about your long-term goals. Whether you’re saving up for retirement or raising capital for that business you’ve been dreaming of, these objectives will help you keep your eye on the long game.
Patience is another thing you have to have at all times when investing in the stock market. You know full well that investing is not something you can learn and implement in a snap to make tons and tons of money. Be willing enough to accept its volatility and stick to the goals you have set for yourself when you started your portfolio.
Think of it this way: investing is you planting seeds. No matter how much work you put into it, this seed will take its own time to grow and show you significant results.
When in doubt, you can always ask for help from professionals such as your financial advisor. Once the market recovers, you can simply pick up where you left off.
Put more money into investing
More than just surviving, there is a way for you to thrive in the midst of a downturn. Truth is, as a young professional, you don’t need to worry much about the market crashing. This is because, for you, this downturn can actually be an opportunity.
Market crashes are a great time to average down, especially when you’re young. The stock market will eventually recover by the time you need money.
More often than not, markets behave irrationally. As one who is rational, you can take advantage of this behaviour and find great investment opportunities that are in the market. Keep this old adage in mind, “buy low, sell high.”
Buy things when they are undervalued and sell them at a later time once they are overvalued. Look for quality stocks that are available at a bargain price.
You can also try leveraging or taking out a personal loan to make your investments. However, know that there are risks involved with this method so read up on its pros and cons before acquiring a loan.
Heed the words of someone we can turn to when it comes to the ever-volatile stock market—Warren Buffet: “A depressed stock market is likely to present us with significant advantages. For one thing, it tends to reduce the prices at which companies become available for purchase at attractive prices. So when the market plummets, as it will from time to time, neither panic nor mourn. It’s good news for you!”
Time to diversify
Diversification is a term that is much talked about in the stock market—and for good reason. Sure, by owning too much of one stock, you can build your wealth pretty quickly. But it can also tear down your wealth just as swiftly.
Observe and study the reasons behind the sudden downturn and analyze if these reasons are legitimate. Watch out for things like sharp increases in unemployment applications or abysmal corporate earnings reports.
Should be the case, then you are justified in taking appropriate action. If your portfolio is not already diverse, it might be the best time to reverse that. Diversify your holdings among various categories of bonds, real estate, stocks, annuities, cash, interest-earning investments, and other asset classes.
In addition to diversifying your money among different asset classes, you can also spread your wealth into international stocks as this will further reduce the probability of any major portfolio declines.
Diversification is one of the best ways to ensure that you have something left for yourself if the bottom drops out.
Steer clear of timing The market
Trying to time the market, more often than not, is just a losing game. Because of its volatility, there is no clear way to tell if the market has hit the bottom and that’s why, during a market crash, it always feels as though it’s too late to sell but too early to buy.
As a young professional, you still have such a long runway ahead of you. You don’t need to worry about timing the market in order to succeed. In fact, you can just wait out market crashes. Don’t get too caught up with the rising and falling of the market as this will only stress you out.
When market corrections happen, let them happen. It’s going to be okay.
Markets can be brutal, but all throughout our history, we’ve seen them go up and down constantly. Bear markets just tend to feel worse than they really are and going through them for the very first time can be a rude awakening. But trust me, you will be alright.
Just remember that, as a disciplined and rational person, there are opportunities even in the very irrational nature of the stock market.
About the author
Sophia Young recently quit a non-writing job to finally be able to tell stories and paint the world through her words. She loves talking about fashion and weddings and travel, but she can also easily kick ass with a thousand-word article about the latest marketing and business trends, finance-related topics, and can probably even whip up a nice heart-warming article about family life. She can totally go from fashion guru to your friendly neighborhood cat lady with mean budgeting skills and home tips real quick.