If you’ve been following the stock market in India and all the recent news surrounding it. You’re undoubtedly wondering if all this volatility means the market is set to implode. In this blog, we will answer some most frequently asked questions; How to Prepare for Stock Market Crashes and Avoid Panic.
While signs of a coming recession have returned, there is no solid proof that we are set to enter a downward cycle. Yet, the stock market in 2022 hasn’t plummeted to the depths of the Coronavirus crisis in March 2020.
How to Deal With a Stock Market Crashes?
Table of Contents
Markets rise and fall. During a stock market crash, however, the worst thing you can do is panic and make emotional decisions that could result in losses.
What you need is to prepare your thoughts during a stock market crisis and avoid making decisions that will wipe out the value of your portfolio.
Here are some suggestions to assist long-term investors in overcoming their emotions and staying the course during stock market crashes.
Start Preparing Yourself During Stock Market Crises
Being prepared for a stock market crash is one of the best things you can do. Remind yourself that the stock market will eventually crash. This will help you mentally prepare for the inevitable sell-off.
Additionally, you can prepare another mechanism to help preserve your portfolio — or at least a piece of it – during a downturn. That way, even if you do need cash during a downturn, you’ll be prepared and the impact will be less severe.
Make Sure You Know In-Depth About Your Investments
If you are investing in stocks, make sure you have a solid purpose for doing so.
Don’t merely buy stock of a business you’ve never heard of because your friend recommended it. Each business you own should have its own thesis. Why would its worth increase over time?
Understanding your investing decisions and what you possess will aid you in evaluating your stocks in good and bad times.
Identify What You Want Your Money to Achieve
You’ll be better able to sustain a stock market fall if you know what you want your money to do for you.
You should invest as much money as possible in a diversified set of stocks if you want to achieve long-term gain.
Resist the Desire to Sell While Stock Market Crises
Resisting the desire to sell in a panic holds the key during stock market crashes.
If you mindlessly follow the crowd, you’ll end up in the same hole as them! Regardless of how much bad news you hear during market crashes, the key is patience.
Giving in to the impulse to sell will almost certainly result in you booking losses and consequently losing your hard-earned and investment money.
Increase Your Stock Investments- Buy the Dip
Asset allocation can help you turn stock market crashes into opportunities to profit and generate higher returns.
Asset allocation strategy is the process of spreading investments across multiple asset classes based on your risk tolerance and investment horizon.
As the equity market falls sharply during crashes, the proportion of equity investments in your portfolio falls due to a decline in valuations, causing portfolios to bleed red. Consider buying the dip during stock market crashes (if your risk appetite allows) to benefit from attractive prices in the future.
Do Not Stop Your SIPs
Stock market crashes cause existing investors to suspend their SIPs. Many investors stop or even start redeeming their existing assets as a knee-jerk reaction to market declines.
Again, this is where we all go wrong. Continue your SIPs throughout the market fall, just as you do when the market is rising. Continuing your SIPs during a down market enables you to purchase more units at lower NAVs. It will further be helping you with a lower average investment cost.
These ongoing investments will aid in the creation of a larger corpus once the market gets back on track. It will be allowing you to achieve your financial goals sooner than expected.
Conclusion
A stock market crash provides investors with a once-in-a-lifetime opportunity to increase their wealth.
However, you must have a plan in place before the market crash to take advantage of it. These 6-strategies outlined above will help you survive a market meltdown. In addition, you should ensure that you can significantly grow your wealth when markets recover.
