If you are a bit anxious about the stock market — and your own investments — after the recent tumble on Wall Street, you are definitely not alone.
While stocks have recovered since that dip, history has shown us that they will fall again at some point. In fact, it’s almost inevitable that there will be another full market crash somewhere down the road.
So, whether you invest using more traditional methods or prefer some of the popular must-have investing apps to purchase stocks, here is how you should approach investing when the market crashes.
Just keep in mind that nothing in this story should be construed as investment advice. If you need help with your investments, consider meeting with a financial advisor.
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Remain patient
One thing you often hear during a market downturn is to remain patient and stay the course. This is usually much easier said than done.
When stocks are crashing, and the numbers from Wall Street look dismal, it can be tempting to make big changes to your investments. However, if you’re able to resist that temptation, it might help your finances. History has shown that the stock market always comes back from crashes and recessions.
There is no guarantee that the future will look like the past, but the odds remain good that recoveries will also follow future crashes. And if they do, remaining patient and staying the course during the crash will pay off over the long haul, helping you to build wealth while you sleep.
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Don't do anything hasty
Part of being patient means not doing anything hasty. During a crash, your investments suddenly may be worth quite a bit less. But the worst thing you can do at such points is to panic.
Instead, stay calm and think with a long-term view. If you find that you cannot sleep at night due to your losses, perhaps it’s time to reduce your exposure to stocks. But avoid knee-jerk reactions and carefully think things through before making any big moves.
Take a closer look at your risk tolerance
A crashing market may be a good time to look at your risk tolerance. In other words, how much risk are you willing to take with your investment strategy?
Uncertain economic times can be a solid test of how comfortable you are with investment risk. If you find yourself feeling anxious and thinking a lot about your investments during a time of uncertainty, it may be a sign you need to adjust your risk tolerance.
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Consider whether to rebalance
If you decide it’s time to make changes, consider whether you want to rebalance. In very general terms, this means looking at which investments you want to keep and which ones you may want to sell to maintain your target asset allocation.
Only you can really decide what balance of investments is right for you and your financial situation.
Think about whether you are diversified
Having a diversified portfolio can be a big help in weathering economic storms. If one sector is being hit especially hard, your investments in other sectors can help balance out the losses.
A crashing market may be a time to look at your investment mix and determine whether more diversification could help you better survive a future downturn.
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Decide whether you want to buy when prices are low
When markets tumble, it can be a good time to consider buying more stock. After all, prices are generally going to be low because of the trouble on Wall Street.
However, exercise caution here. For starters, markets could continue to fall even after you make purchases. And if you are counting on the market to recover quickly, there is always a chance that you will be disappointed.
Buying stocks when they fall sharply often pays off. But nothing is guaranteed.
Decide whether to dollar-cost average
If you are not familiar with dollar-cost averaging, it’s a strategy where you invest a predetermined amount of money into stocks on a regular basis. Many people take advantage of this strategy through their work-sponsored retirement plans.
If you are a “stay the course” investor, it might make sense to just continue to buy through all the market’s ups and downs. Only you can decide whether this is the right strategy for you.
Talk with a financial advisor
Times of economic uncertainty may be good opportunities to talk with a financial advisor. Find an advisor who fits with your investment style and has a solid background.
One advantage to having a financial advisor during tough economic times is that they can help you take the emotion out of investing and focus on the facts and figures.
Bottom line
A crashing market can rattle your nerves. Fortunately, recoveries usually follow such plunges. However, when markets tank, it can be tempting to make moves you might later regret.
So, long before a crash appears, make some wealthy money moves that will put you in a better position to weather the storm: Know your risk tolerance, make sure you have the right asset allocation and consider meeting with a financial advisor.
Masterworks Benefits
- Invest in art like a millionaire for a relatively low cost
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