The market is down when there is a sudden or dramatic decline across the stock market which results in significant loss of wealth. The market is down due to prolonged periods of rising stock prices, excessive economic optimism, extensive use of margin debt and leverages by market participants. Market drops are scary but sometimes predictable also. Market tank or by how much the market tank cannot be predicted. Market crash becomes the worst news if you need money soon, that is why it is advised that you shouldn’t buy stocks with that money that you’ll need in the coming couple of years. For many investors the market crash becomes a no issue.
Points to remember when the market is down
Avoid panicking
If one morning you hear the news that the market is down don’t panic. You should always keep in mind that the market is involved with risk and return. If you dream of having amazing long-term returns then you must be willing to accept all the risks that come in hand with the returns. With enormous returns comes great risks. Bring a thought of the companies you have invested in and whether the companies still suit your investment strategies. After the market is down if those companies still suit your investment portfolio then keep them and wait for their limelight appearance.
Consider buying when the market if down
Market down gives you an opportunity to buy certain stocks, it is one of the ways of making money when the market is down. Markets are down often when there are fortunes being made. If you want to buy when the market is down then you need to be specific and should save a little side money on such occasions and if possible you should keep a handy list of the names of the stocks that you would prefer buying when the market is down and you can list it as “stock wishlist”. Keep a watch on the companies when the market is down. And importantly make sure that you use only your investment money and not the money you have kept aside for your emergency funds or other future funds as you are putting in a lot of risk while using your future funds.
Experts generally recommends to buy stocks when market is down. We will recommend you, to do the fundamental analysis of stocks before make investment.
Remember the long haul and stay calm
It is difficult to think for the long term but it is important if you want to invest successfully. There are people who invest for the short term but that doesn’t always end well. For long term investments a market down now won’t have a major effect on it. Consider MRF as an example, it started with Rs 11 per share and today its value per share is around Rs 80,000. Long term investors of the company have seen a drastic rise in their share prices and they may have come across many market highs and lows.
Make adjustments in your portfolio after things have calmed down
After a market volatility the value of your investments may change your original asset allocation from your target. Big market movements are some good reminders to do a checkup of your portfolio and consider making some changes to bring your portfolio back into balance. If you hadn’t diversified your portfolio before after a market dip you must diversify your portfolio as it is an important step of a good investment return.
Understand the financial markets
You start losing perspectives and start making rash decisions when your stock market gets tough. You need to have a long term vision if you need to succeed in stock investing and understand the functioning of the financial markets. The market is down because some investments have increased while others have decreased. If for example the market is down by 30 percent, your portfolio might decrease with a smaller percentage if you understand the financial market and have kept a diversified portfolio.
Avoid any urge to sell
Panic stock sell is the worst thing you can do after the market is down. Buying low and selling high is a successful investment strategy. And if you sell after a market dip you do just the opposite. If you think that you will sell now and when the market improves you will get back in then you are wrong as you will have no idea when the market will swing back and sometimes you pay a big cost if you miss out on some good days in the stock market.
Keep a backup plan in hand
Not every time things go out as planned so you should always have a backup plan to compensate when things don’t go as planned. And ensure that you have adequate money if your plans fail. Always look for the long run then take any investment step. Even if a market dips, not all sectors have a worse effect and some sectors may rebound quickly.
To sum up
Markets are a little tricky as you always need to be ready for the fall and be in an agreeable position all the time to sacrifice all the money you have put up in the market. When the market is down the best thing you can do is “Nothing”, at least for a while. As a precaution you should always diversify your portfolio within asset classes, so that if one industry is down you get some gains from other industries. The market game name is “Risk Tolerance”. A market dip is not a sign of financial collapse and it doesn’t mean that stocks are no longer a good and profitable long-term investment. After things have cooled down, take some time to analyze your investments and make adjustments if needed to. Bring back your assets allocation back to track. If you are young, a millennial then you should be least concerned about market dips as you have years to make up to. It is said and believed that you should act poorly when something this scary takes place. And always invest after doing your homework and a past growth checkup of any company before investing.
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