Stock market crashes are the worst nightmare for investors. Imagine when you wake up, your portfolio is down by 30, 40 or even more than 50 percentages. Scary isn’t it? Well, today we will discuss four things that you can do to protect your wealth from market crashes.
The first and foremost thing you need to do is to remain calm. Stock market crashes are not the end of the world. Yeah, you may lose some money in a paper but it becomes real only if you sell your positions. So remain calm and analyze the economic conditions. Try to understand what’s going on and why the market has crashed. Understand that it’s not easy to see your portfolio drop each and every day. But if you are not calm, things could get really worse.
2)Avoid panic selling
The second thing you need to do is to avoid panic selling. If you are a long-term investor, don’t sell your position as soon as the market crashes. Just sit back and hold on to it. It also depends upon what kind of stocks you are holding. If you have done your research properly and identified stocks with good financial conditions, holding on to your positions will help you. That’s why getting the right education is very important in investing. If you are a short-term trader, wait for the trade to hit the stop loss or profit target. Don’t immediately sell it.
3)Add on to your position
This only applies if you are a value investor. Your stocks are now selling at a crazy discount. Add on to your position. Buy more stocks. Average out your positions. Your stocks are down only due to economic conditions and sentiments. and not because of the company’s underperformance. So it will be a great idea to buy more stocks that you already have in your portfolio.
4)Buy more blue-chip stocks
Next thing you can do is to buy more blue-chip stocks. These companies are already huge and crashes are not going to affect them in the long run. These companies have a track record of performing well and giving good returns. Alternatively, buying more index funds like the S&P 500 will also be a great idea.
Keep in mind that crashes are part of the market cycle. It will happen once in a while but nobody knows when. Just keep calm, relax and make sure you don’t panic and mess up the situation.