10 ways to handle a market crash
1. If you have been doing dollar cost averaging (DCA), continue to do it - it is most advantageous to do DCA when the market is crashing. In fact, it is the only time it would beat lump sum investing. You must continue and not stop. Each month with the same amount of capital you can buy more stocks - $500 buys 500 shares when share price is $1. Same $500 buys 1000 shares when share price is halved. Keep buying as long as you have income coming in.
2. If you are really worried about losing a lot of money, close some positions and reduce your market exposure. I know it isn’t easy to cut losses but if you don’t, the worry will grow with the losses and eat you inside. It is not worth losing your health over your wealth. No health, no wealth. Get your priority right. Live and fight another day. Some will say think long term and just hold. This is assuming you can mentally and emotionally able to handle the volatility. We are all different and there’s no shame in doing the right thing for yourself.
3. If you are slightly worried but it isn't affecting your well being, you can alleviate your anxiety by zooming out and look at your overall net worth. In Singapore, the average household assets consist of over 40% in housing, 20% in cash and less than 5% in stocks. A stock market crash is not going to harm a typical Singaporean’s net worth. Of course, the average can be misleading and you may have a bigger allocation to stocks. Even so, you will still have other assets to cushion the drop in stock value. Zoom out and it might make you feel better.
4. If you find the market crash manageable, you can just hold onto your investments that are meant to be held long term. If you have done your due diligence, you should be confident to hold on to the investments and ride out the crash. If you are right, the investments will recover and surpass the previous high.
5. If you have been speculating stocks and have no intention to hold them long term, you should own up and sell. Don’t hold on to speculative stocks long term because a handful of them will not be able to recover to the price you buy. You have to realise the capital loss sooner or later, might as well sooner and you can redeploy the capital elsewhere. The exception is when you have apportioned a small part of your portfolio to deliberately bet on speculative stocks and are prepared to lose it. If so, just continue to hold because the amount is too small to harm your core portfolio long term.
6. If there are some stocks you wanted to buy but didn’t get the chance to buy, a crash often presents the opportunity. But what if you do not have enough cash? Look at your current holdings and sell those that are less attractive to the ones you want to buy. Yes, you might sell them at low prices but you get to buy the better ones at cheap prices too. It is just our price anchoring, loss aversion, endowment effect and mental accounting that are playing tricks in our head. Aim to build a better portfolio.
7. If you are holding more cash than stocks, you are in a good position but don’t waste it. You might think that you should wait as the market is going lower as each day passes. The thing is that it is difficult to know where is the bottom and many people miss it. Do your valuations and buy once they get cheap enough. You do not need to deploy all your capital at once, you can dollar cost average too.
8. If you are still working and have an income, you should not need any cash flow from your investments. Hence, any decline in your portfolio value is not impactful to your daily life. It also gives you the ability to establish a long investment horizon. If you are a retiree who need to draw down your capital for living expenses, you should not have a large exposure to stocks as they are too volatile. But if you have built a dividend-focused portfolio, you can hang on to your investments as long as the dividends are consistently being paid to you.
9. If you are invested in well-diversified ETFs and unit trusts, you can continue to hold them long term. They are eventually tracking the markets and markets are resilient. Some individual stocks may not survive but the markets always survive unless it is the end of the world. If so, we all die and it doesn't matter anymore.
10. If you only invest via an advisor, this is the time where you may find it comforting that someone is handling it on your behalf. You may even want to talk to your advisor and get his or her recommendation. The advisor can also serve as a counsellor if you are feeling worried about your portfolio. He or she can think more objectively and make sure you don't make rash decisions.
11. I may not have covered all the scenarios but I hope you understand that a context is required before deciding what is the best course of action. What is suitable for one may not be suitable for another because the context is different. What other ways can one do during a market crash?
2. If you are really worried about losing a lot of money, close some positions and reduce your market exposure. I know it isn’t easy to cut losses but if you don’t, the worry will grow with the losses and eat you inside. It is not worth losing your health over your wealth. No health, no wealth. Get your priority right. Live and fight another day. Some will say think long term and just hold. This is assuming you can mentally and emotionally able to handle the volatility. We are all different and there’s no shame in doing the right thing for yourself.
3. If you are slightly worried but it isn't affecting your well being, you can alleviate your anxiety by zooming out and look at your overall net worth. In Singapore, the average household assets consist of over 40% in housing, 20% in cash and less than 5% in stocks. A stock market crash is not going to harm a typical Singaporean’s net worth. Of course, the average can be misleading and you may have a bigger allocation to stocks. Even so, you will still have other assets to cushion the drop in stock value. Zoom out and it might make you feel better.
4. If you find the market crash manageable, you can just hold onto your investments that are meant to be held long term. If you have done your due diligence, you should be confident to hold on to the investments and ride out the crash. If you are right, the investments will recover and surpass the previous high.
5. If you have been speculating stocks and have no intention to hold them long term, you should own up and sell. Don’t hold on to speculative stocks long term because a handful of them will not be able to recover to the price you buy. You have to realise the capital loss sooner or later, might as well sooner and you can redeploy the capital elsewhere. The exception is when you have apportioned a small part of your portfolio to deliberately bet on speculative stocks and are prepared to lose it. If so, just continue to hold because the amount is too small to harm your core portfolio long term.
6. If there are some stocks you wanted to buy but didn’t get the chance to buy, a crash often presents the opportunity. But what if you do not have enough cash? Look at your current holdings and sell those that are less attractive to the ones you want to buy. Yes, you might sell them at low prices but you get to buy the better ones at cheap prices too. It is just our price anchoring, loss aversion, endowment effect and mental accounting that are playing tricks in our head. Aim to build a better portfolio.
7. If you are holding more cash than stocks, you are in a good position but don’t waste it. You might think that you should wait as the market is going lower as each day passes. The thing is that it is difficult to know where is the bottom and many people miss it. Do your valuations and buy once they get cheap enough. You do not need to deploy all your capital at once, you can dollar cost average too.
8. If you are still working and have an income, you should not need any cash flow from your investments. Hence, any decline in your portfolio value is not impactful to your daily life. It also gives you the ability to establish a long investment horizon. If you are a retiree who need to draw down your capital for living expenses, you should not have a large exposure to stocks as they are too volatile. But if you have built a dividend-focused portfolio, you can hang on to your investments as long as the dividends are consistently being paid to you.
9. If you are invested in well-diversified ETFs and unit trusts, you can continue to hold them long term. They are eventually tracking the markets and markets are resilient. Some individual stocks may not survive but the markets always survive unless it is the end of the world. If so, we all die and it doesn't matter anymore.
10. If you only invest via an advisor, this is the time where you may find it comforting that someone is handling it on your behalf. You may even want to talk to your advisor and get his or her recommendation. The advisor can also serve as a counsellor if you are feeling worried about your portfolio. He or she can think more objectively and make sure you don't make rash decisions.
11. I may not have covered all the scenarios but I hope you understand that a context is required before deciding what is the best course of action. What is suitable for one may not be suitable for another because the context is different. What other ways can one do during a market crash?
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Venture118 : Well said … ThankU
