What’s your plan if the stock market crashes tomorrow? Bear markets are inevitable, and having a contingency plan for the bad times can completely change the way you live and retire. If you play your cards right, you can manage the risks of a plummeting market. You can even capitalize on the opportunities available when everyone else is panicking and running for the exits.
If you’re in a position to make these four shrewd moves, then you can overcome the pain of a market crash by embracing the opportunities. If you’re not in a position to make these moves right now, start thinking about ways to prepare for stormy days ahead.
1. Remain calm
This one cannot be stressed enough. In the hours and days immediately following a market crash, this effectively translates to “do nothing.” Watching your investment account values plummet can trigger some deeply emotional reactions, but emotion shouldn’t play a significant role in investing. Panic can completely poison an otherwise well-constructed plan. It’s basically impossible to act with robot-like precision, but do your best to set some rational goals and adhere to them.
Avoid selling when the market is down. You’ve probably heard the advice to “buy low and sell high” — and getting rid of your stocks at the bottom of a bear market is the exact opposite of that. Watching your children’s college fund, your retirement plans, or your home down payment go up in flames can be a harrowing experience. Nonetheless, you need to recognize that every market crash has been followed by a bull market as the global economy and its biggest companies continue to march forward in the long term. You only lock in losses when you cash out — staying invested gives you the opportunity to ride out temporary downturns and take advantage of the recovery that inevitably follows.
Keep your eyes open for new opportunities.
2. Take inventory of your other assets
When one asset class is experiencing an extreme event, it’s a great time to check up on other elements of your financial plan. Most people own some combination of real estate, bonds, cash (including foreign currency, digital currency, and CDs), and insurance policies with cash values or annuity accounts. These other assets may be performing in completely different ways compared to your stock portfolio.
Make sure you have enough liquidity to meet your household financial obligations without selling your temporarily depleted stock holdings. If there’s a recession going on, then you should be ready to ride out unexpected expenses or losses of income. Determine what your best sources of liquidity are. If possible, you want to find cash that you can use to purchase stocks that are “on sale” after they plummet.
I’ve seen people who paid down their mortgages ahead of schedule during times when the stock market…
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