There’s no sugarcoating it: Nobody truly likes to see the stock market go down. Your portfolio becomes a constant reminder of pain, tugging at every square inch of your emotions. You start rationalizing how to sell your stocks and wait for the selling to end. “I’ll just get back in for the ride up” are the famous last words of many retail investors.
The market is a daily compilation of knee-jerk reactions; there’s no telling how it might react to headlines or how long it will move in a particular direction before pivoting without warning. Still, many people try to outmaneuver the market, especially during down markets.
Do you want the real secrets to surviving a market crash? Here they are.
Image source: Getty Images.
1. Take a long-term approach
Everything starts with embracing a long-term mindset to your investments. You need to mentally prepare yourself for the volatility that will probably show up at some point, especially if you are holding individual stocks. What’s “long-term”? Try to be prepared for a multiyear horizon when you invest because the market will go through ups and downs; there will be bull markets and bear markets.
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You run the risk of driving yourself insane if you check your stock portfolio every day (sometimes every hour), wondering whether you should buy or sell based on what you hope the stock market might do next. The more you let that stress in, the more likely you are to try and trade around the market’s activity.
A study showed that roughly 80% of mutual fund managers underperform the S&P 500 over five years. Why? It could be because money managers are accountable to clients and their expectations and chase short-term returns to attract new investors. Don’t do this. Instead, think of each stock you own as a partnership with that company. Look at the company’s performance, management, and long-term goals. Don’t let the stock’s price tell you how to feel about it.
It’s common for stocks across the board to trade lower during a market crash — the baby gets thrown out with the bathwater, as they say. So use a crash as an opportunity to hone in on the unfairly sold gems.
2. Use dollar-cost averaging
Once you’ve identified a company you want to partner with (invest in their stock), please don’t throw a giant lump sum at it. This is just another form of trying to “time the bottom” in a crash. You might look at that …….
