A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth.
Investors are advised to have a good knowledge of stock trading before investing in the stock market.
Also, a discrete decision on the time limit of any investment is also crucial either in a long-term investment or a short-term investment. Ideally, crashes do not occur out of nowhere.
There are often warning signs but most investors tend to ignore these signs and allow the crash eat deep into them. “However, you should not wait for the market to decline before taking actions”, financial experts say.
They advise that being diversified is the best offensive – and defensive – weapon in any investor’s arsenal. In other words, have your money in commodities, bank accounts, real estate, bonds, commodities, and liquid investment so if stocks crash it doesn’t guarantee you’re in immediate trouble. In fact, precedence have shown that as some of the assets fall, other assets may actually rise – or at least you will find that your portfolio is less likely to suffer as much of a fall in the stock market alone.
Experts also advice when you feel the dip on the stock is becoming obvious, you should reduce your vulnerability by selling, not outright selling off all your socks, rather sell stocks that you feel they are more vulnerable or stocks you feel will be more affected during the period. Just trim by half for instance cut a 100 share position to 50 shares, and probably invest in something more defensive, a security that either didn’t decline as much or didn’t decline at all in the sell-off. That way, you are better prepared for the next down day, and also still in a position to profit as you originally planned if the investment should change its arrow direction in a twinkle of an eye.
Investors are advised to eliminate debt during the crash period, in order to avoid the scrutiny and harassment of financial institutions at such a turbulent period. Those with the least amount of debt will tend to be affected the least when crash occurs, experts believe. Rather bolster your emergency savings. Immediately cut back on frivolous spending and put any spare money into various bank accounts and retain them until the crash period is over then you can start re-investing, but this time employ a conservative, better researched, and safer investment strategy which will save potential heartache and financial headaches.
You would think that the world is ending if you are watching financial television when the market has eaten deep into you. Analysts are all over television advising you to buy or sell shares. One of the best things to do when the market is down is to turn off the television. Financial television programs are concerned with short term market movements and momentum trading.
This does not help a long term investor. You never want to make buy or sell decisions out of emotion. It is a well-known fact that the markets are ruled by two human emotions: Fear and Greed. Part of being a successful investor involves distancing yourself from emotions that otherwise would prompt you to do irrational things. Financial experts always say emotion has no place in investing. Your decisions should always be made when you are thinking clearly. So, stay away from the heat of the moment, relax and check back in on the market when fear has subsided.