Stock trading is risky and exposes traders to situations where they can lose all of their money or laugh to the bank.
Uncertain background: The current macroeconomic and geopolitical environment has created a fluid environment. Despite the uncertainties, the market has continued to grow despite the COVID-19 pandemic and has crept into record areas.
The broader S&P 500 index, which fell sharply earlier this year due to the outbreak of the pandemic, has bounced back well from a low in late March. Since scaling a high of 3,588.11 in early September, the wider gauge has moved into consolidation mode and has picked up the strong gains.
Amid the uncertainty surrounding the US presidential election and dispute among lawmakers over incentives to stimulate the slowing economy, stocks moved south in mid-October. This has sparked visions of an impending retreat that could trigger a crash. While the election result has lifted markets, rising COVID-19 cases could spook markets again.
How should you prepare for a sudden downtown?
Detecting a crash: A bear market is a retreat of more than 20% from its recent high. A stock market crash can generally be defined as a sudden and sharp fall in stock prices within a very short time interval. When stocks start to fall, already weak investor sentiment will worsen. Fear becomes the predominant emotion that greed takes over, and this leads to incessant sales that wipe away the market value of millions of stocks.
History of the stock market crashes: Some of the largest recorded stock market crashes in US history include:
The stock market crash of 1929
The stock market crash of 1987
The dot-com bubble burst from 1999-2000
The 2008 crash after the great recession that followed Lehman Brothers bankruptcy.
Further link: 3 ‘safe’ ETFs in the event of a stock market correction
For those nervous investors who panic about potential losses, here are some guidelines that can help you stay healthy amid the pandemic.
Let the turn of events take their course: A clear mind is very important when investing. Knee jerk reactions that burn a hole in your pocket should be avoided at all costs. Fear and panic should be kept in check.
It is better to follow the maxim “buy cheap and sell high”.
If you panic and hit the sell button at a time when the stock market is crashing, an investor will only get poorer and no longer be able to benefit from a market rally.
If we go back in history, stock markets around the globe have weathered some major crashes and have come out stronger.
In the most recent crash in the Great Recession, the S&P 500 hit a low of 666.79 on March 6, 2009. From there, the index has soared more than 400% in just over a decade.
It’s all about waiting for the adversities with a lot of patience.
Stay immune to the noise: In view of the upswing of the so-called stock market experts who have an opinion at every turn on the stock market, it is quite natural to be influenced by their recommendations and warnings.
At least in times of crisis such as a market crash, it is advisable to rule out the cacophony. Following any expert’s advice will only add more confusion and make rational thinking difficult.
Instead, focus on investment goals and look at a longer time horizon to help overcome volatility.
Turn adversity into opportunity: As the saying goes, an optimist finds an opportunity even in difficult times. Be that optimist who still sees the rosier side of the dark ages. Here are a few things an investor can do to capitalize on a market downturn:
Look for stocks of profitable companies that pay dividends. Dividends ensure a steady stream of income that flows to an investor. It is paid out of the net income generated by the company. Not only are dividends useful to cover costs, but they can also be used to reinvest.
Look at bonds. Bonds also earn fixed income securities in the form of interest.
Buy recession-proof or defensive stocks like consumer staples that can withstand the sell-off in the stock markets.
Diversify your risk by investing in a portfolio or ETF.
Avoiding the herd mentality, maintaining your health in the face of adversity, reducing noise, and devising a prudish downtime investment plan will serve an investor well during times of stock market crash.
See more from Benzinga
© 2020 Benzinga.com. Benzinga does not offer investment advice. All rights reserved.