Stock Market Crash: How to Keep Your Cool in a Falling Stock Market

It is not possible to always foresee a coming stock market crash. Smart investors know the importance of keeping calm and unruffled in a falling stock market. They know that during a market meltdown, it is essential to keep your emotions in check.

Investing in Stocks for Beginners

Discipline is a must for investing in stocks. When you are confident that things are sailing smooth, you may encounter the next stock market crash. When you are facing market volatility, you need to think rationally.

It is extremely important to keep your cool during a stock market crash. The immediate reaction of many investors during such a time is to sell everything. However, this is not the right move.

If you see drops in the share market, you need to think about how to take advantage of the stock market crash. Do not take any rash decisions out of anxiety.

• Related – How to Predict a Bubble and Steps to Avoid it

14 Ways to Keep Your Cool During a Stock Market Crash

You should keep in mind that the stock market is very resilient. So, you don’t need to panic when you see a falling stock market. You need to be a little patient to tackle the situation. Let’s take a look at the best ways to keep your cool during a stock market crash:

1. Do Not Believe in the Hype

First of all, you should not believe in the hype about falling markets. Media tends to create a wave of panic whenever something goes wrong. Whether it is about a hike in the recent interest rate or market crash, people cannot stop talking about it.

If you see people in your circles talking about falling markets, do not panic. Everything has a positive side. Instead of believing what others are saying, you need to think about the best investments during the stock market crash.

2. Turn Off the Television

If you want to stay unruffled during a stock market crash, you should turn off the television.

According to the financial consultant, Peter Frawley, you must not stay tuned to the breaking news during this time.

If you listen to the news every few minutes, you will feel jittery. Listening to the TV reporter talking about the falling market will not let you take a wise decision. Instead of watching the television, you should switch on your computer and research about stocks that go up when the market crashes.

3. Look at the Situation as a Buying Opportunity

When you research about stock market correction crash, you will automatically feel calmer. You must understand that investing is not a sprint. It is rather a marathon.

Look at the stock market crash as an opportunity to buy promising stocks at cheaper prices. During this time, stocks will be on sale. So, do not panic and sell everything.

• Read – Investing at a Young Age: The Pros and Cons

4. Do Not Let Your Fears Overpower You

You should not let your fears overpower you during a stock market crash. Surviving a bear market can be difficult, but it’s not impossible. A bear market implies a sharp decline in the stock prices.

The prices decline by about 15-20%. There is also an overall pessimistic attitude about the falling stock market. This makes investors jittery and scared.

You need to separate your emotions from the process of investment decision-making. It may seem like a massive catastrophe to you at present. But after a few years, it will hardly matter.

5. Play Dead

One of the best ways to keep your cool in a falling stock market is to play dead. The bears rule during a bear market. As the bulls have no chance, the best things they can do is to play dead.

Fighting back during a bear market can be very dangerous. Do not make any sudden moves. Stay calm and wait for the bull market. It will prevent you from becoming the lunch of a bear.

“Playing dead” implies that you should put a huge portion of your portfolio in securities such as U.S. Treasury bills, certificates of deposits, etc. These are instruments that have a short maturity and high liquidity.

6. Diversify Your Portfolio

One of the best things that you should do during a stock market crash is to diversify your portfolio. Spread your portfolio among bonds, stocks, cash, and other alternative assets. This is known as diversification.

You should consider your goals, time horizon, and risk tolerance when you spread your portfolio. The situation of every investor is different.

A financial consultant can help you with a great asset allocation strategy. This will prevent you from the potential negative effects of keeping all your eggs in a single basket.

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7. Rebalance

Selloffs are very common when there is a big drop in the stock market. However, there are also bargains in this situation.

When stock prices decline and bond prices rise, you should think of shifting some money from the bonds to penny stocks. Rebalancing is a great way to handle the situation.

8. Money Market Funds

You should know where to put your money before the market crashes. Money market funds can help retirees during a stock market crash.

At the beginning of a year, retirees should have 12 months of daily expenses in their money market funds. This will prevent them from panicking during turbulent times.

IRA distribution planning and general budget planning can prevent retirees from heavy selling during a stock market correction crash.

9. Look at it as a Minor Setback

Look at the falling stock market as a minor setback. Do not expect the stock market crash to be a recession. This is one of the best ways to keep your cool and stay positive during a market meltdown.

Try to distract your mind. Instead of watching the news all the time, indulge in some relaxing activities. Listen to some soothing music or take your dog out for a walk.

10. Do Not Change Your Investment Strategy

Do not sell your stocks and make a new investment strategy. This can increase your anxiety and restlessness. Stick to the strategy that you made earlier.

Most investors become so jittery that they sell off all their stocks to get some cash. According to a certified financial planner, Cameron.J.Penney, investors should not change their investment strategy in a falling stock market.

The average drop of S&P 500 is 14.2% in the last 36 years. Out of those 36 years, the S&P 500 returned positive in 27 years.

11. Be Aware of What You Own

‘Is it time to get out of the stock market?’ If this question is bothering you during a stock market crash, you should first be aware of what you own.

You must know the value of your holdings. Once you are aware of where you are exactly invested, you will be able to take a wise decision. You can decide if you want to change your portfolio.

• Also See – 3 Best Financial Investments to Make While Young

12. Review the Asset Allocation Strategy

There will always be chances of the stock market crashing even when things are looking promising. When you encounter a stock market crash, you should review the asset allocation strategy.

If your portfolio can weather the turbulent times, it means that your asset allocation strategy is perfect. If not, then you need to review your asset allocation strategy and make necessary adjustments. One of the best ways to reduce risks is diversification.

13. Meet a Financial Planner

One of the best ways to keep your cool in a falling stock market is to meet a good financial advisor or planner. If you feel restless during a falling market, taking help from a professional financial planner will calm you down.

A financial planner can help you reallocate or rebalance your portfolio to deal with the situation. He can also tell you about the next stock market crash prediction.

14. Educate Yourself

It is very important to know about what’s happening in the stock market. The more you educate yourself about the stock market and stock trading, the better you will be able to take practical decisions. It will let you keep your cool during a falling stock market.

When you know that the stock market has volatility and large swings, you will not panic when it crashes. Educating yourself will let you know that 10% of the downturns of the stock market are not abnormal.

Not knowing how stock markets work makes investors jittery. Therefore, you should read books on investment and stock markets to understand how it works.

Wrapping it up

No one can give you an answer to the question “Will the stock market crash this year?” As an investor, you need to be prepared for every situation. You must keep yourself calm in a falling stock market.

Panic will only result in making a wrong decision. Changing your investment plan or selling off everything can make you regret later. You must know what to buy during a market crash.

The key is to stay focused on your long-term investment plan. Take professional help if you are unable to handle the stress alone. Educate yourself and research about stock markets. Keep calm and don’t lose hope.