When indices in the stock market experience a hasty and quick drop in double-digit percentage, it’s considered a crash. Nobody knows when a stock market crash will occur. Due to the stock market crash in March 2020, volatility is still elevated in the market, and therefore, concerns about another market crash are bound to be genuine.
Realistic advice is required in this hard time as it looks like the stock market is due for another crash soon. Investors are advised to learn lessons from past crashes and some fundamental rules of investing to lower down the risk and minimize losses. So, in case the stock market crashes again, they will be prepared. Instead of worrying you can also look at the documents required for demat account and register with a good broker.
- Long-term performance that counts
Do not count the present worth of your portfolio rather count its long-term performance. Try to not cash out in the influence of others. Technically, you lose money in the stock market if you sell stocks at a loss. If you have invested for long term say four years or more, then there is no reason to worry. You have plenty of time to recover.
- Stocks on sale
Investors are scared to put money into a plunging stock market. But you need to take it as a golden opportunity to buy more shares at cheap rates. You can get your Demat Account credited with dividend-paying stocks if you believe that the company will be successful in the long run.
- Recovery is bound to happen
All 38 crashes since 1929 have been followed by a recovery. After the crash, a recovery eventually happens in the stock market. It can be U-shaped or V-shaped or W-shaped but it's sure to happen. Yes, it will not be as quickly as you want it to. Minimum six months is an average.
Past stock market crashes have witnessed a decline of real depth. While experts say it's very unlikely to see it again. In 1987, the largest one-day market decline was witnessed at above 22%. It was the biggest market downturn in history that took two years to regain. With 2020 already giving deep discounts on stocks, another stock crash is not on the horizon.
You know stock market crashes are inevitable and another crash is coming, so you have time to be prepared for a crash and guard yourself against being caught off. Keep at least six months' cash as an emergency fund. In this way, you will be well-prepared for an emergency and do not need to sell investments when the graph is down. Always invest surplus which is not to be utilized for essentials or savings.
Review your risk tolerance in the strong market. Rebalance your investments - aggressive or conservative. This smart move will guard you against making an emotion-driven decision in the crashed market. It is important to know when to pull out of risky aspects like day trading and when to stay invested for the long-term.
The Bottom Line
A market crash affects investors the most who have a short-term mindset. Remember crash will not remain forever. Focus on companies that you want to own. Invest in its shares with a focus on your long-term goals. So, you need to come out from fear of the stock market crash and focus on preparation with a good broker who offers low-cost brokerage solutions like Bajaj Financial Securities Limited trading account. Instead, you can look at increasing your understanding of sectors that have been doing well in this crash and the reasons behind it.