A lot has been happening in the world in the last couple of years. There have even been speculations of a potential stock market crash. However, the market crash is not a big concern for professional investors. They have mastered ways of navigating these crashes and even obtaining financial benefits from them. But, the problem is with the less experienced investors. To them, a stock market crash is a cause of panic, seeing most of them make wrong decisions like panic sales, which results in losses.
Whatever investment decisions you’ll make during a stock market crash has a significant impact on your stock investment in the long run. Yes, it’s a fact that most people lose more money during a stock market crash, but this isn’t always the case. Some investors take advantage of such crises and turn them into a fortune. It all depends on your investment strategy.
How to Take Advantage of Stock Market Crash – Experts Insight
While it is common for many investors to incur losses during a stock market crisis, some still make huge profits during such times. The crash should not always be the cause for panic. With proper analysis, going through stock market reports, and with the right strategy, you can reap more than you expected during this crisis.
Stock market investment experts gave their view on the stock market crisis. These experts see this as an opportunity to spend less and gain more returns in the near future. Whenever there is a stock market crisis, always remember the following quotes:
- A stock market crash is a perfect opportunity for an investor to maximize their profits.
- As an investor, you should consider selling part of your stock shares during high market periods and re-investing when there is a market dip. Also, day traders too must be able to make fast decisions if the market turns and the investment starts to drop in value (see day-trading in Canada for more on the subject).
- Stock shares are at their lowest price during a stock market crisis; buying them at such times is the best idea if you aim at maximizing your capital investment returns.
What Are the Opportunities That Come With the Stock Market Crashes?
While the majority of people will associate stock market crashes with losses, the reverse also happens. There are a lot of opportunities that present themselves during such market dips. You can convert this misfortune to an excellent opportunity to get maximum returns with a proper investment strategy.
Below are some of the opportunities you can take advantage of during a stock market crisis.
During a Market Crisis Stock Prices Drop
It is the aim of every investor to spend less in buying stock shares but get higher returns. While this is the usual way for long-term investors, most first-time investors learn the hard way. Most of them will get nervous when there is a stock market crash. This state of pressure and panic results in most first-time investors either shying off from the stock market or selling their stock shares at a much lower price.
It takes an experienced investor to look at this crash as an opportunity and buy new stock shares and add to their portfolio, though brokers can also help you navigate successfully through a stock market crisis (see also robo advisors). The price drop allows them to buy more stock shares.
For new investors, however, it is good to diversify your portfolio for a start. The best option would, therefore, be to invest in exchange-traded funds because they combine several securities. In this case, if the stocks of one company perform dismally, the other stocks would come in to save the situation, thus, reducing the risk of enormous losses.
The Stock Market Crash Will Yield More Returns if You Maintain a Fixed Amount Investment Strategy
Bear markets are a perfect opportunity for making more money. The bear market happens when there are more than 20% sales. Can you imagine buying stock shares when everyone is selling their shares? It sounds like it needs more experience, but the truth is this is a straightforward exercise.
If you have a fixed amount of money you invest every month, you should maintain it even during a market crisis. During the crisis, the stock prices fall, meaning you get more stock shares for the same amount you invest. When the market picks up, your shares will attract more returns, hence higher profits.
Investing a fixed amount every month eliminates the risk of investing a considerable amount during the wrong market phases. This approach is called the dollar-cost averaging, which lowers the risk of investing when the markets are high. High markets mean higher stock prices.
Stock Market Crash Provides the Opportunity to Further the Growth of Your 401(K)
The market crash can catch you off guard. It might come at a point where you don’t have cash at hand. In this case, you can use your 401(k) contribution to buy the stock shares. The shares will, of course, cost less, and you’ll be able to buy more shares. Selling the stock shares in future at higher prices when the stock market picks up momentum yields more returns. This will increase the growth of your 401(k) account.
What Should I Do When a Stock Market Crash Occurs?
Different investors react and respond to the stock market crash in different ways. It takes some by surprise, so they end up panicking and disposing off their stock shares at lower prices. However, with a sound investment plan, you can do several practices to see your capital investment grow.
Below are some of the practices you should do whenever a market crash occurs.
Use Your Previous Gains to Re-Invest
The trick with the stock market is to sell when the prices are high during high markets and use the gains accrued to re-invest during a market crisis. This capital cycle will see you getting more profits over time.
You should, however, not sell all your stock shares during market highs. You can sell up to 15% of your shares.
Sell the 15% shares at a market high, hold on the money, and use the re-invested dividends to buy the stock shares during the market crash, for the stock prices are low at this time.
However, this isn’t the ideal option for new investors. They should focus on mutual funds which offer investment diversification for their safety.
Buy Stocks With Dividend Payouts
The rate at which stock shares sell dictates its prices. However, dividends generate from the net income of the company. The stock price can fall, but the dividends may remain unaffected. It is, therefore, an excellent consideration to invest in companies with dividend stocks because even though the stock price may fail, you can still earn an extra amount from the company’s dividends – as a stockholder you also receive dividends when your company earns profits.
The dividend aspect should, however, not overwhelm you. It would be best if you considered other aspects when investing.
You may focus more on dividends and end up investing in a company with low-profit stocks.
Buy Stock Shares of Promising Companies
While buying shares of any company during market crashes can still generate more returns, investing in promising companies provides security to your investment other than providing value to your capital investment. These companies will generate good profits and higher returns on your capital investment.
Such companies are characterized by low debt-to-equity ratios, significant profit margins, and organized and ready-to-help management. These firms also tend to navigate market crises maturely and recover soon enough.
Have a Proper Investment Plan
Guesswork investment during a market crash may result in further loss of money. You are supposed to establish a viable investment plan that will help you maximize the returns. The dollar-cost average is an investment strategy that allows investors to invest fixed amounts regardless of the stock market phase. This strategy bars you from investing vast amounts during market peaks that have higher shares prices. Timing the market is almost an impossible task, so the best option will be to have a fixed investment every month.
Have a Backup Plan
A backup plan entails having several income sources and backup cash generators in case your primary source fails.
Diversifying your investment portfolio will help you spread the risk. Create other income sources like establishing rental units, royalties, or small businesses. The side cash generators will continue adding value to your portfolio and investment accounts as you carry on with your daily assignments. The long-term result is financial independence.
What Not to Do During a Stock Market Crash
While you may panic and want to sell your stock shares, take time and weigh your options. Buying rather than selling is a better option. The worst thing that can happen is you sell the shares due to panic. This time provides cheaper shares. Thus, selling the stock shares during a stock market crash will result in lower returns.
Therefore, selling your shares during a market crash is not an advisable plan.
The Bottom Line
It is a bad idea to assume that every declining market is a call for panic. Yes, it could result in losses of your hard-earned savings and retirement funds. However, a proper investment plan can present a perfect opportunity for an investor to maximize their capital investment. Stock prices are always at their lowest end when the stock markets crash. This means that you can get more stock shares for the same amount of money.
You can also take advantage of the stock market crash by re-investing your accrued gains. The critical factor during such times is to assess your past performance, establish a strategy and avoid panic transactions. Also, maintain your investment objectives and prepare for the next market crash.
If things don’t work out, you can use the independent financial advice in risk tolerance and investment objectives follow-up.