Over the years, an investor might go through several stock market downturns. Experts say that it’s not unusual at all for stock markets to crash from time to time. In fact, you should expect stocks to fall by a good 10% once a year, 20% every few years, 30% or more at least once or twice each decade and 50% once to twice in a lifetime.
Even though these percentages might not be too encouraging for some, a stock market crash can actually be a blessing in disguise. For one thing, you’re going to be getting great bargains as many high-riding stocks become available at reasonably lower prices.
Many investors, however, are not able to fully capitalize on stock market downturns and here’s why: the sheer pressure of making financial decisions during a sagging market can be cumbersome. Plus, even if you want to buy more stocks, all signs around you point to a big no. After all, it’s perfectly natural to succumb to feelings of fear and uncertainty when the stock market crashes, and people just do not want to sell. This is precisely what you should not be doing.
The fear alone prevents us from buying more, especially since the price has sunken because so many investors sold shares. If they sold it all, then why should you buy? Common sense would tell you to stay put, right? Now, let’s clear the air a bit more: retirees tend to suffer the most following a market crash because they rely on investments for daily living. But even then there are ways around it – move that short-term money into CDs and/or money market accounts. That should give retirees ample time to sit it through until there are signs of a stock market recovery.
What You Need to do and do Fast
The moment the stock market crashes or even sees a correction, what you need to do is be on your toes because a recovery is often witnessed rather quickly.
To take advantage of this market drop, keep a part of your portfolio in cash so that you can pounce on attractive opportunities as they arise. In addition, make a list of stocks that might be of interest. The idea behind this is to keep a watch on how much each stock’s’ value has increased or decreased since landing on your list. And when the market does crash, you can see the stocks which have decreased the most.
Even better if you maintain this stock list as an online portfolio – this will allow you to see stock price movements over time. To add a little more purpose to your “stock watch list”, you can add an estimated intrinsic value to each holding. For instance, if you feel holding XYZ shares is worth $35 a share and it’s currently at $40 a share, you can add this to your online portfolio as if it were bought at $35. And, each time you check the portfolio after setting this estimate, you can see right away what value above or below the “estimated intrinsic value” the stock is currently trading for. This simple approach helps you shortlist the most worthwhile investment opportunities during a stock market downturn.
Eagle-eyed investors have time on their side because they are always on the lookout and prepared for dips in the stock market. This gives them enough legroom to pick up their favorite shares at temporarily lowered prices. Plus, a low market also gives investors an opportunity to turn to other options, such as binary options trading. Getting to know how other markets work can be extremely beneficial from an investment point of view. There are numerous tools and services, such as binary options signals, which can assist and semi-automate trading decisions.
A stock market crash can be a huge problem, especially for those who earn their bread and butter from the market. However, wise investors can actually gain from it. The fact remains that stock market gives signals before a meltdown, and once you begin to see such signs you should begin to prepare for the ‘bad’ day. And the preparation includes investment, since what’s low today is going to rise tomorrow.
If you can sum up the strength and courage to buy during these dips, you can easily add long-term investment value to your portfolio at significantly reduced prices.