We all worry about money. It is quite easy to understand why one would be worried about having little or no money. But, we also worry when we have money. This is especially true if our money is invested in the stock market and if there is a market crash situation.

There are many reasons for which stock markets crash and in a very recent event markets globally crashed due to the Pandemic. The fall was dramatic and caught most investors unaware. While a crash in stock markets or a market correction is impossible to predict, there are various strategies or good investment habits that investors can inculcate to minimize its impact on their investment portfolio. 

We will discuss strategies or investment habits that investors can utilize to minimize the impact of a stock market crash on their investments. 

  1.    Resist the Urge to Sell in a Panic

During market corrections, many investors sell off their investments thinking it will further erode their wealth. Negative news such as a pandemic, an asset bubble burst or geopolitical issues, etc. can influence the markets. However, historical data proves that the longer you stay invested in the market better your chances to earn the returns.

This is the key reason why the strategy of timing the market does not work well for most investors. The important thing to remember is that fear leads to panic, especially among investors. This panic often makes the investor take irrational decisions emotionally and sell their investments at low prices during a stock market crash. But historically, markets have always recovered from a crash and grown.  If you manage to tame your fear and continue investing irrespective of market conditions, you will reap the rewards in the long term. 

  2.  Protect Your Personal Finances

A stock market crash impacts a lot more than just the value of your investment portfolio. In fact, financial markets can also affect employment, the Real Estate Market, consumption of goods, inflation, and much more. Thus stock market turmoil can have a different impact on different individuals, but there are a few things that you can do to minimize this impact. 

Create a Personal Cash-Flow Statement

A cash flow statement is a record of all the money that is coming in and going out on a regular basis. By maintaining a personal cash flow statement, you can organize your finances better so that a stock market crash does not impact your ability to take off essential expenses. Moreover, accurately tracking your expenses can also help reduce extravagant and often unnecessary expenses. 

Create an Emergency Fund

Another way to protect you financially in case of an emergency is to create an emergency fund. In case you do not have an emergency fund yet, you should start one immediately. If you have an emergency fund already, a stock market crash will not impact your mental well-being.  

  Manage Your Debt

If your existing debts are well managed with your earnings such fall in the markets will not impact your strategy to invest in the markets for the long term.

3. Invest in Equities But Choose Carefully 

While equities are cheaper when stock markets tank, it is essential to be careful while making these investments. A stock market crash provides you the perfect opportunity to increase your Equity allocation at reasonable valuations. This is because Equity investments, especially when purchased at low valuations, have an unmatched ability to boost your investment returns for long-term goals. You must make sure you do sufficient research when selecting individual stocks to invest in. If you do not have the ability and time to value or research stocks, it’s better to take expert advice.

   4. Focus on Making Long-Term Investments

      When the stock market tanks few questions come up every time: 

• Will the stock market go down further?
• Will the economy recover? 
• Can stock prices increase from here?

While short-term volatility is inevitable when you are investing in Equities, how this volatility affects you depends solely on your risk appetite and investment objectives. If you are a long-term investor these ups and downs in the stock market should not bother you. Understand that volatility is an integral part of the investment process and corrections are part and parcel of the markets. 

5. Time:

The single most important thing is that the time horizon of your investments is all that matters. Look back to whatever period you want to, and see declines are not permanent. Markets have grown always and created new highs. Bear markets become a trap only when you need to get your money out at specific time and specific value but that’s not the way equity investing is to be done.

6. Buy

If you want to grow your investments then every market correction or fall should be looked at as a buying opportunity. When there is blood on the streets investors try to catch the bottom which is next to impossible. The smartest person invests at every dip and accumulates good stocks at reasonable valuations.

 Bottom Line

A stock market crash offers investors a unique opportunity to grow their wealth.  Historically a contrarian view has generated higher returns in the market. There are various strategies for investment in the stock markets but the best strategy is to keep investing systematically irrespective of the market conditions. It has been historically proven that this strategy works best.

The strategies discussed above are designed to help you not only whether a market crash better but also make sure that you can grow your wealth significantly in the long term.

If you can have a check on your emotions of Fear and Greed such turbulent times pass and create higher returns in the long term.