Friday, 1 January 2021

How To Endure And Profit From Stock Market Crash


Stock market crashes are unnerving for everyone who owned stocks and even those who don't will notice the effects. Job losses, home foreclosures, bankruptcies, and business closures are all inevitable things that go hand and hand with seeking market losses. Stress levels and emotions can be high, but it's important to distance your feelings from your financial decisions. During rough times like these, nothing is certain, but there are some things you can do to make the best of a negative situation. And perhaps, allow you to profit over the long term. Don't be caught wondering what moves to make when something like this happens. Is if you are expecting the market to steadily rise forever. Instead, do these things that will protect your finances and benefit you.





Don't Panic

It's easy to go into a panic mode when the news is filled with stories of stock prices falling through the floor and unemployment rates skyrocketing. Many people feel the need to cash out their investments and stash some money in their mattresses due to fear of uncertainty. Even worse, depleting savings by hoarding products is a very short-sighted strategy. Making impulse decisions during times like this can often result in poor choices, ones that you'll regret down the road.


A stock market crash is inevitable, and anyone who invests should be aware that there will be times when investments drop in value. Markets have always gone up and down with wild fluctuations, being ready to see the value of your portfolio dropped during tough economic times will go a long way with your emotional well-being. On average, you can expect a crash every 8 years or so, the stock market dropping an average of 41%. If you have a $500,000 portfolio during a good market, don't be surprised if it were to drop to $300,000 or less


Buying stocks has risks and rewards and panicking during the lows as counterproductive




Review Long-term Trends

Sometimes, investors get so caught up in what's happening with short-term trends, but they're not paying attention to the bigger picture. Elections, earning seasons, and other pieces of news are just magnified results of what an investor will experience over a career. It can certainly be scary to see volatility disrupt your savings as your account balance varies by the thousands every day. However, if you look at long term trends and remind yourself that over the course of decade 82, the overall trend is higher, it can help you stay calm when things head down 


The real estate and stock market generally always rise and they have always recovered from drops. Even during extreme times of gloom such as the Great Depression which lasted 10 years. Try to focus on the big picture and how your finances will look in 5, 10, or 20 years. 





Take On A Side Hustle

Most people rely on only one source of income to fund the entirety of their expenses. When that one source gets compromised or eliminated, it can take a tremendous toll on your mental health. Relying on your boss signing your paycheck every week to put food on your table is risky. Chances are good that he'd sacrifice your financial well-being before his. If you don't have one already, take on a side hustle for an additional income stream


This could be delivering pizza a few nights per week, babysitting on the weekends, or finding a way to make money online. Ideally, these are best established before the market crash, but there's always opportunity somewhere. An additional source funding your bank account is a fantastic buffer for your finances. If your main income remains stable, your side income could be used to pay off debt or each other financial goal. Establishing multiple income streams is important regardless of the stock market. You know will help ease your mind knowing you're not relying on one job 




Buy On Sale

The main advantage of a drop in stock prices is the ability to purchase assets at a discounted price. Warren Buffett says that the stock market declines are rare times when quality businesses can be found in the clearance aisle. When you keep investing the same amount every week regardless of which way the market moves, you're able to purchase more shares of the same stocks when prices drop. It might seem counterintuitive to some people to buy when prices are low, but this is how the rich get richer by purchasing investments that are discounted


If you have extra money available, it can be a great time to put that cash to work in the market. purchasing at the bottom of the market would be a 41% discount on average. It can be nearly impossible the determine when the market has reached its rock-bottom, but you can simply purchase investments any time their prices have reduced. Just think how much money you'd be losing by selling your assets at a 41% discount. Never mind the penalties you might incur if you withdraw from a retirement account.




Increase Your Savings

Splurging and large purchases are usually something to avoid during uncertain times. This might mean waiting a little while to purchase an additional car or vacation home, holding off on that high-end watch you are eyeing, or canceling some unnecessary subscription services. If necessary, take a look at items you don't care about that you could sell.


Each market crash has a different economic impact, and they all have varying degrees of intensity and duration. So it pays to be cautious, even more so if you're carrying debt. Making a large non-essential purchase particularly without proper savings could be disastrous. Increasing the gap between your income and expenses will provide further protection against potentially reduced income.




Keep Reserves

A very common mistake is not keeping enough money in a savings account for emergencies. An emergency fund is an essential element of not only building wealth but providing a critical component of financial security. Layoffs and job losses can and do happen. Restaurants, stores, and services can see reduced sales as customers struggle to spend money. This can be alarming, but it's much more tolerable when the proper savings have been established. Three to six months of expenses is what most experts recommend, but during wait market cycles when a recession is overdue. Six months are more saved up is safer.


These guidelines aren't just for individuals. many small businesses fail because they don't have proper savings, and there's no money to pay the bills during the lapse in income. Keeping money in a savings account for difficult times will prevent or at least decrease the likelihood that you'll need to take on debt or withdraw from retirement accounts if that's even an option




Assess Your Plan

Everyone should have a long-term outlook for their finances. This includes key factors like when you can and will retire. Being 20 or 30 years away from your planned retirement date puts you in a much different situation than someone a year or two away from ending work. To hedge against bear markets, it's generally recommended that investors shift their portfolio into more conservative investments, whereas a younger individual just needs to invest for the long term


Periodically take a look at your portfolio and goals and consider what-if situations. Assess your risk tolerance so you're prepared for the worst.






Conclusion

Emotions run high when the economy is poor especially if you face reduced income. Having a plan will allow you to make reasonable decisions during times of uncertainty. No one really enjoys unpredictable times of turmoil, but preparing long in advance will help you make the best of it. When a market crash does strike, it pays to stick with your plan and try to separate your emotions from your finances. Cut back where you can, be extra cautious of your income sources, take on extra work if you can, and stick to the long-term plan that will help you profit when others are selling their assets out of fear.


One of the worst things you can do is panic and sell off everything due to fear an improper planning  


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