A The stock market crash may not be a big horror movie, but it is a nightmare for many investors. It’s not just about losing money. It can also spoil your long-term goals and threaten your future financial security. But that doesn’t have to happen. If you take the following steps, you should be able to weather a stock market crash without too much difficulty.
Make sure you are diverse
Lack of diversification is a legitimate reason to worry about a possible stock market crash. If you only have your money in a handful of stocks, the likelihood of large losses is higher, especially if all of your stocks are in one market sector.
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Ideally, you should have your money in at least 25 different stocks, and those stocks should be in a few different sectors. This ensures that all of your assets are not affected if a major issue affects a single industry.
If you don’t feel comfortable choosing stocks, you can always go for an index fund instead. These are lots of stocks that you buy together, and they are designed to mimic a market index. They’re some of the cheapest investments out there, and they instantly diversify your money among hundreds of businesses. This makes it a popular option for both new and experienced investors.
Remember your long term goals
Short-term losses can be stressful and can lead some investors to believe that they are doing something wrong. But the truth is, the ups and downs are a natural part of investing. Even the best investors lose money sometimes, but they know when to sell and when to stay the course.
If you have a diversified portfolio and are confident that you have chosen solid companies that will still be profitable in a few decades, the best thing to do in the event of a stock market crash is often to do nothing. Remember that you are investing for the long term and these short term fluctuations don’t mean much in the scheme of things.
If it helps, avoid checking your portfolio more than once or twice a year. For some people, checking it more often than that can spur them on to emotional decisions that end up costing them dearly in the long run.
Use the average cost in dollars
Average buy is an investment strategy in which you invest a regular amount of money on a schedule. For example, you could invest $ 100 per week or $ 500 per month. You decide what works best for you. The point is, it’s automated. Once you’ve established a schedule, you don’t have to think about it or even check your wallet.
This is the strategy you use with your 401 (k) whether you know it or not. Your employer withholds a certain amount of money from your paycheck and deposits it into your 401 (k) where it is invested in the securities you choose.
You can also do the same with other investment accounts. Many allow you to link a bank account so that the funds are automatically transferred according to a specific schedule. Check with your account provider if you don’t know how to set this up.
This hands-off approach to investing is a great choice for those who fear a stock market crash because you don’t have to try and time the market. Sometimes you will invest when the prices are high and you will not be able to buy as many stocks. But other times you will invest when the prices are low and you will get more stocks. Ultimately, everything will balance out and you will end up paying a fair price for your actions.
Another advantage of the average buy is that you don’t have to worry about forgetting to invest. Once you’ve set up your automatic deposits, you don’t need to do anything else. Just make sure that transfers are set to take place when you have sufficient funds in your bank account, such as right after your payment, to avoid an overdraft.
There is nothing you can do to make yourself immune to stock market crashes, but if you follow the three steps above, you shouldn’t have too much to fear from them. Just stick to your plan and know that the market will eventually recover.
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