Hey all! This will be the first of the posts I write related to the markets, finance, etc, in order to build up somewhat of a portfolio writing in the field. I’ve done a little bit of research on topics related to the markets and their futures, and have been following the real estate and stocks for some time, but believe I still have a lot to learn. Anyway, lets get into it!
What Do I mean by “Crash?”
While the general consensus is that the markets will remain open, and countries – such as the USA – will not lock themselves down again, there is a worry that a sudden spike in cases might lead to further lockdowns. The recent pickup in cases has caused some to worry about rapid reopening, and overshadowed the growing US economy. This has some casting doubts over consumer confidence and the overall recovery as a whole.
A crash would be another large drop or dive in the markets, such as a 8-13% decrease in value that creates panic and impulse selling. This can domino into further selling and even more panic, leading to a recession similar to that of 2008.
What Can You Do to Defend From a Crash?
While it is unlikely that a crash will occur – markets having mostly recovered from the recent dive they took – you should still be prepared to act swiftly and defensively in order to prevent an immense loss. You can start doing this immediately by reviewing your risk tolerance and considering if you’re playing the market with too much at stake. Short-term fluctuations might not have much of an impact on your long-term gains, but if you panicked at the start of the COVID-19 recession, it might be time to readjust your positions.
You can do this by rebalancing your overall investment, moving your money into a more secure asset such as bonds rather than stocks. The reverse is true if you find yourself comfortable with more risk – put more of your wealth in stocks. The more experienced investor already knows this, but for those of us that are just starting out, you should always make sure you know your own risk tolerance.
Don’t Panic – Even When a Crash has hit
The worst thing to do when the market is crashing is panic sell. You’re not thinking straight, you’re driven by the red you see all over, and all you can do is think of how to get rid of it. You’re not thinking long-term. Never rebalance as a response to the market – you’re potentially shooting yourself in the foot. Calmly, carefully, approach the situation and determine if you aren’t comfortable with that much risk, and check your cash reserves. If you have the funds to last an emergency, without panic selling and trying to scrap out whatever money you can, consider buckling down and riding it out.
The market can get wild at times – as many senior investors know – and acting on impulse doesn’t do anyone any good. This volatility can often play in your favor, in fact. If you’ve got the risk tolerance for it, and the knowledge and reserves to do so, take advantage of other’s panic by buying up stocks you know will recover once crash is over. Their loss is your gain.
Overall, its unlikely that the markets will see a COVID-19 crash any time soon. However, that doesn’t mean that you shouldn’t be prepared for one! Consider rebalancing and pulling funding from some assets to have funds on reserve for an emergency if you feel your risk tolerance just isn’t up to the task.
Hopefully my first post about finance went alright. Let me know if there’s anything I could do better, change, or if you have ideas for a new topic! Additionally, if you have any resources I can use, please send them to me!