Fears of a new stock market crash have dominated the headlines in the past week. We really can’t predict if, or when, one might happen. But we can plan to survive one, and even profit from it.
So I’ve been looking for expert tips for dealing with a stock market crash. And I want to share some with you, along with my own thoughts.
I’d say panic-selling is probably one of the worst things we can do. And I’m far from alone. Investing experts around the web are saying exactly the same thing.
It can be easier said than done though. Just look at what happened in the Covid pandemic. Because of panic selling, shares crashed far harder than they needed to.
But panic-selling can create some terrific bargains for investors with cooler heads. And that brings me to the next tip.
Buy more shares
Searching for how to survive a stock market crash throws up lots of recommendations to buy more shares.
Billionaire Warren Buffett once said that “every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold“. As he put it, those are times to rush outside carrying washtubs. And fill them with cheap shares.
But what if you don’t like the risk? Everyone has to work out their own appetite for risk. So it’s no good me just urging people to rush out and buy.
Riskier growth shares can fall hard during a market slump. As a result, investors who are averse to risk could face some heart-stopping moments.
To reduce that fear, we can stick to safe, mature companies in essential markets. For example, skipping tech stocks and investing in companies that make or sell food can help minimise the sleepless nights.
I see pundits stressing the need to diversify. And that’s one tip I firmly agree with. If there’s a crash this year, it’s likely to be triggered by financial woes.
Inflation remains stubbornly high, with interest rates up there too. So bank shares have been falling faster than most. As a result, it’s perhaps not a great idea to have too much invested in the financial sector.
So to reduce risk, I invest in a variety of stocks spread across different sectors. In fact, I always hold a couple of investment trusts which provide diversification in a single stock.
Don’t change anything
I’m going to finish with a tip of my own. You see, I reckon long-term investors should be doing all these things anyway.
Why would we ever sell out of panic, whatever the reason? And why wouldn’t we always try to buy as many shares as we can?
Keeping risk within our comfort zone, and diversifying to help handle sector crises? Well, I do those all the time too. I think everyone should.
What comes next?
There are plenty of tips out there for handling a stock market crisis. And remember, what has followed every stock market crash in history? That’s right, a new bull run.