How to handle a stock market crash
Here is what our advisers recommended on how to handle a stock market crash:
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- Buy low
- Leave your portfolio alone
- Cut losses
- Diversify
- Invest in bonds
Retail investors tend to be wary of stock market volatility and the fear of a market crash. A lot of people saw their portfolio value erode during the pandemic-induced crash. Even though market crashes are inevitable, there may be more to them than simply riding out the lows. Temporary dips matter little when you consider overall market trends over the years. The tried and tested philosophy of staying invested instead of panic selling stems from these trends. When speaking about investing, we always recommend you consult a qualified financial adviser with any decisions you have.
1.Buy low
Crashes are usually accompanied by sell-offs or forced trades. As a crash is a drastic and unexpected drop in stock prices, a lot of offerings may become available at lower rates. If you’ve had your sights set on a particular stock, you could benefit from the lowered price. Alternatively, you could continue your regular or periodic investments without any change. While you shouldn’t make overwhelming changes at this time, you can reflect on your portfolio and incorporate new stocks that you may have previously considered but not purchased.
Moreover, dollar cost averaging can play out to your benefit. This concept is the practice of investing a fixed amount on a regular basis, regardless of the share price. Decide your fixed investment amount and intervals and doing so enables you to reduce risk and even out how much you invest at a particular time.
2. Leave your portfolio alone
When looking at your portfolio during this time, if it does not require doing anything new or different, your best move might be to do nothing. If you are not incurring heavy losses, you can maintain your positions for the time being. Be careful not to be swayed by panic or fear because chances are that if you sell now, you could miss out on the recovery later. Remain calm and stay invested. If you have doubts, talk to a financial adviser, and remember that it is not about timing the market, but time in the market.
3. Cut losses
In contrast, cutting losses is also a smart decision. Depending on your available funds and plan, you could sell your stocks and divert the earnings into a different asset. If you’ve been investing in a taxable account, you could make tax claims on any losses incurred. In such cases, it is best to seek professional advice to know your tax obligations and purchase options.
4. Diversify
Similar to selling your position and moving to a different investment, we always recommend having a diversified investment portfolio. It is unlikely that all industries crash together. If pharmaceutical companies did better than tourism during the pandemic, you can find other such industries that remain relatively stable during crashes. Diversifying in this manner can simultaneously protect and build your investments. A great alternative option to investing which we will always recommend is property. Property investing is a fantastic option to have in your investment portfolio and holds its value throughout various crashes. If you are interested in speaking to a property adviser, get in touch.
5. Invest in bonds
Probably the most popular fixed-income investment, bonds are essentially loans to companies or the government. Guaranteed by the government, they have a track record of ensuring benefits however small they may be. While they don’t generate returns on the same scale as stocks or corporate bonds, bonds can act as a safety net.
What to do?
Being prepared regarding what to expect from or how to deal with a stock market crash can be invaluable to your financial management. Alongside easing your worries about potential losses, you can mould this situation to your benefit. At Hoxton Capital Management, we can help you with that. Speak to one of our financial advisers to craft a financial plan that is resilient to market fluctuations and gives you the best outcomes.
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