The biggest crash in world history is coming? Indeed, the markets look really ugly these days.
How has the past bear market crashes been?
|Start and End Date||% Price Decline||Length in Days|
|11/28/1980 – 8/12/1982||-27.11||622|
|8/25/1987 – 12/4/1987||-33.51||101|
|3/24/2000 – 9/21/2001||-36.77||546|
|1/4/2002 – 10/9/2002||-33.75||278|
|10/9/2007 – 11/20/2008||-51.93||408|
|1/6/2009 – 3/9/2009||-27.62||62|
|2/19/2020 – 3/23/2020||-33.92||33|
Bear markets are indeed normal. There have been 26 bear markets in the S&P 500 Index since 1928.
Bear markets tend to be short-lived. The average length of a bear market since 1980 is 292 days, or about 9.7 months. This is significantly shorter than the length of a bull market, which is 991 days, or 2.7 years.
What should you do in times of market crash like this?
1. Dollar Cost Average
Dollar Cost Averaging (DCA) into stocks/index is what truly challenges your conviction during a bear market. This is the best time to lower our average cost of a given stock at these periods.
At the end of the day, this frequently magnifies gains compared to exiting the stock market while stocks are down. That strikes me as a really wise decision. Furthermore, because fractional shares are now available, you may also easily do it with individual stock or ETFs.
2. Best Time to pick up new stocks
When the market crashes, I am always eager to buy new stocks. Of course, fundamentally solid stocks with a huge economic moat.
This is when I will pull out my watchlist of companies and determine which ones have the largest margin of safety. Not just that, but figure out what caused the market to crash. We must also consider if the stocks in which we have invested will be able to weather this terrible market.
Warren Buffett once said, “Be fearful when others are greedy and be greedy when others are fearful.”
3. Look at the long term
During a down market, it is critical to consider the long term. We should never get emotional during such moments. To begin with, if the companies in which we invest are tremendously lucrative and create significant free cash flow. There is no need for us to sell even though the market is in a panic.
For any investor who did not sell any of their shares (assuming that the firms are fundamentally sound), their invested money would have returned to its original level within a few years and then exploded in value over the next half-decade.
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Bear markets can be excruciating, but they are typically brief. While it may appear that selling during a bad market would be ideal, timing the market may be what everyone does, even for pros. This implies that the most essential thing an investor can do is choose high-quality assets with the purpose of holding them for the long term. This is not easy while maintaining a close check on positions in growth companies and perhaps volatile investments.
Personally, in Learn To Invest, is this the biggest crash in world history? Who knows?
No one has a crystal ball to predict the future. Instead, what we can do is to stay in the market and leverage the cheaper stock prices available to us. Above are 3 simple steps we believe you can take to tide through a market crash.
Disclaimer: The information provided by LearnToInvest serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock. This advertisement is not reviewed by the Monetary Authority of Singapore.