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Ways To Keep Your Investments Secure When The Stock Market Is Tanking

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Ways To Keep Your Investments Secure When The Stock Market Is Tanking

When the stock market plummets, it is our immediate reaction to panic.

We put our hard-earned money into our investments, and before our eyes, we are watching its value decline.

However, the best course of action is to clamp down on these high, understandable emotions, wait for a few hours, then move on to make logical decisions.

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image credit to fool.com

After all, the stock market is always fluctuating.

It is simply an inevitable, unavoidable aspect of the investment world.

Just take a look at how much the stock exchange trends shifted over the course of only the past few years:

Even more, economists are currently predicting a massive stock market crash upcoming in 2016.

Some are stating that current U.S. stocks are overvalued by as much as 80%.

Many fear that investors are walking into a similar trap as they did in 2007.

James Dale Davidson, who predicted the famous stock crashes of 2007 and 1999, is predicting a similar crash.

This should indicate to investors that there is likely an economic storm on the horizon.

With all these apocalyptic economic forecasts being broadcast, here are a few things NOT to do in the case of a massive market downturn.

Panic
Plain and simple: don’t panic.

This leads to emotional investment decisions and pulling out funds when it can be more damaging than helpful.

This is easier said than done, however.

Don’t obsessively check on the value of your portfolio.

Don’t immediately sell off all your investments: this way, you are guaranteeing a loss for yourself!

Being Unprepared For Loss 

Remember from the beginning of your investment career that there WILL be losses.

There are plenty of online simulators where you can manage imaginary money in the market, and experience the negative feelings of loss, before it happens in real life.

Be ready for the worst and strategize in advance.

Strategically make investments in multiple sectors to limit your losses.

Even though risk reduction may lead to return reduction, it is ultimately up to the investor to decide how much of this tradeoff he or she is willing to make.

Try to invest in derivatives or real estate to hedge against losses.

Understand how the market works, know your personal tolerance for risk, and prepare for the loss in advance.

Live In A Fantasy World

However, if a crash is indeed coming, and very predictable, you have to cut your losses.

It is plain idiocy to pretend like a stock crash isn’t coming when it clearly is.

In America, it is a year full of hectic elections and escalating violence.

It is inevitable that global investors doubt us.

It is wise to sell off at least some of your highest valued stocks while you are still in the green.

This way, you can avoid loss later down the line.

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Fail To Understand Market Trends

Remember that over time; market values have climbed, even though widespread worry and fear would have suggested otherwise.

If you can stay ahead of the curve, remember that fluctuations happen, and brace yourself for upcoming change, you will experience far less mental and financial strife.

As they say, there are “bear” and “bull” markets, when values are respectively decreasing and increasing.

The switch always occurs every few years.

It is very normal for the stock exchange to have down years and no reason to panic.

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DON’T FORGET ABOUT DCA

For long-term investors, dollar cost averaging is one of the safest bets.

Some benefits include:

  • Buying shares at low price while the market is already declining in value overall
  • You purchase shares regardless of their current market value
  • In the long run, your average buying cost will “average down.”
  • Your overall share entry price will always improve over time

Try To Be A Bull

One of the best things you can do in a bear market is playing dead.

Don’t try to be a bully.

Don’t make any sudden, unpredictable moves, just like if you saw a bear in real life.

Put more of your shares in stable investments like the money market or treasury bills (things with short maturity and high liquidity).

Put All Your Eggs In One Basket

Diversifying is an absolute must.

You keep yourself secure by making sure if one market tanks, you have many others to back you up and keep you financially stable and flexible.

With diversity, you can bounce back.

Without it, you have nothing left to reinvest and have to start from scratch.

Invest More Than You Can Lose 

This seems obvious, but enough people do it that it is worth mentioning.

If you can’t afford to lose it, don’t invest it.

You should always come at investment from the mindset of “what would happen if I lost this” instead of “what could I gain if this goes well.”

We are biased to think that we make good decisions, but as with everything, there is a balance to be struck between confidence and security.

Don’t get involved with equities, except if you have a very clear investment horizon.

Markets can be very destructive, but it is easy to forget that.

Miss Low Cost Opportunities 

Stop worrying about what you are losing in a bear market and think about what you could gain.

Famous investor Warren Buffett invests in low-cost stocks when the market is flat, so that when it springs back he makes an enormous increase.

This is an excellent strategy when the market is declining, especially if you see a lot of potential value in a future stock.

It is easy to get caught up in the declining value of your current stocks, but don’t.

You can use this as a chance to diversify your holdings.

Some other useful strategies include:

  • Putting your holdings in defensive industries, or non-cyclical stocks, like shaving cream or other things which are a steady value
  • Inverse ETFs can give you an opportunity to profit from the decline of index funds when the market is failing
  • Doing nothing: sometimes it is better to wait for the stock market to bounce back than to make any moves at all.

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