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Stock Markets are crashing. What should you do?

Stock markets all around the world are crashing. The SPY(SPDR S&P 500 ETF Trust) is down more than 12% from the recent high. DJI(Dow Jones Industrial Average) has lost more than 4000 points. As an Investor, what should you do? Is a recession coming? Or Should you panic?

 

The answer is “No”. Stock market crashes are common and sometimes happens for no reason. However, current panic is due to the corona virus and investors are pulling out their money in fear of a recession or more downturn.

 

If we look at the last 10 years (From 2010 to 2020), there has been numerous corrections like this and the market still performed well. On the technical side, the uptrend is still strong and on the fundamental side, there’s nothing to be worried of.

 

Recession is not going to come anytime sooner and we are still optimistic about the markets. So what should you do now? Let’s take a look at four things you can do during a market correction.

 

First and The Most Important thing to do is to Remain Calm

The first thing you need to do is to remain calm. Yeah, you may lose some money on 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 a correction. 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.

 

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 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.

 

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 or sentiments and not because of the company’s under performance. So it will be a great idea to buy more stocks that you already have in your portfolio.

 

Buy more blue-chip stocks

Blue chip 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 corrections are part of the market cycle. Just keep calm, relax and make sure you don’t panic and mess up the situation.

March 1, 2020

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