Why even - 50 % market crash won´t make you scared
Hey,
You got it right.
Market crashes are welcome - they are just part of the equation. Over the long run, the stock market has provided the best returns of all asset classes.
When you understand that market crashes and declines are just a natural part of investing, you understand you can´t do anything to prevent them.
You will adapt and evolve, or miss the train. Simple.
How to prepare for market crashes both mentally and in practice.
Short term market crashes are opportunities for longterm wealth
Risk and return are always related.
During the 2008 crash, many investors panicked and considered selling off their stocks to protect their savings. However, those who understood that market downturns were a normal part of the investment cycle avoided making emotional decisions.
If you didn’t have sufficient cash buffer, you didn´t buy. If you did you bought. If you didn’t have money at all, you were on the sidelines.
Warren Buffett, the legendary investor, famously said, “Be fearful when others are greedy and greedy when others are fearful.” During the 2008 crash, while others were selling in panic, Buffett saw an opportunity. He took advantage of the market’s lower prices and invested in quality companies. Buffett’s actions demonstrate the importance of sticking to long-term principles, even when the market seems to be crumbling around you.
2. Keep investing as usual.
It’s tempting to shy away from buying stocks when the market is falling,
This happens because fear - mentality and because your subconscious mind gets on a defensive mood:
“will I lose everything"?”
“can this happen to me as well?”
“everyone is selling - I will too before I lose it all”
Stop right there.
Seasoned investors - and eventually you as well - know that downturns can offer some of the best buying opportunities. In fact, market declines present a chance to add quality stocks to a portfolio at discounted prices, setting investors up for gains when the market recovers.
Take Apple, for example.
During the 2008 financial crisis, Apple’s stock dropped significantly, but Buffett didn’t hesitate to invest in the company. He recognized that, despite the temporary drop, Apple’s long-term potential was there. By focusing on the long-term, market downturns allow investors to use the opportunities to build a quality companioes or create a better portfolio at a fraction of the price.
3. Consider starting monthly savings - DCA.
One of the smartest moves an investor can make is starting a regular savings plan.
By committing to invest a fixed amount each month, investors are able to buy more units of their funds when prices are low and fewer when they are high. This strategy—often referred to as dollar-cost averaging—helps smooth out the market’s ups and downs, ensuring consistent growth over time.
Julie - a friend of mine asked what would be the best strategy for help. My first question was “what do you want?”. Second was “are you doing DCA already?”.
Julie set aside a portion of her monthly salary into a diversified mix of stocks and bonds. Since COVID-19 Julie stuck to her plan, buying more at lower prices. Now, her portfolio has grown significantly, proving that regular contributions can lead to long-term success.
And yeah, Julie doesn’t even think about tariffs or other so unrelevant stuff. Julie keeps doing her thing and she is on the winning team.
4. The Importance of Staying Disciplined in Volatile Markets
In moments of market volatility, it’s easy to become overwhelmed.
During the 2020 market crash, for instance, it felt like the financial world was unraveling. For many, the temptation to sell was strong, but those who stayed disciplined and stuck to their long-term investment plans came out ahead.
Warren Buffett’s approach is a great example of this discipline.
Buffet made his fortune by sticking to his strategy of investing in businesses with long-term value and ignoring short-term fluctuations. While the media bombarded investors with negative headlines during market crashes, Buffett remained calm and focused on his strategy, which ultimately paid off. Now Buffet has a massive cash pile waiting for doing it all again.
No one holds hundreds of billions of dollars on cash without a reason. Fixed income is not enough for investor like Buffer. He has a plan.
5. The Power of Compounding and Long-Term Growth
The most powerful tool in investing is time.
The earlier you start and the longer you stay invested, the more your wealth will grow due to the power of compounding. Many long-term investors have seen their portfolios grow exponentially as returns are reinvested and begin earning additional returns. That´s simply because of compound interest.
Market crashes can freak you of, that´s ok. But don’t you dare stop investing because of such events. Keep going.
6. Diversification: Spreading Risk for Better Returns
Diversification is just smart from risk perspective.
But diversification might be bad from profit perspective.
No one ever got crazy rich by diversifying. Referring to Stanley Druckenmiller, “sometimes is it the best to put all eggs on same basket and what´s the basket very carefully.”1
If you are a beginner, you should definitely start with index funds and broad perspective, looking for global exposure and allocation for multinational big companies.
As you gain experience and find what you don´t like, slowly you’ll start diversifying into other asset classes, such as bonds, real estate or perhaps become a contrarian investor.
Check from post below an investment thesis from contrarian perspective 👇 👇
Contrarian Investment Thesis & Recent Stock Investment
An Investing Lawyer - newsletter is helping people create reliable cashflow through income investing to cover expenses, solve problems, and create the life they desire.
7. Take a deep breath and stick to your investment plan.
You are not alone. When the market drops, it’s easy to feel anxious.
Many investors have felt that anxiety, especially during downturns when it seems like everyone around them is selling. But the key to success is to stay calm and stick to your plan. Don’t let the short-term market movements derail your long-term strategy.
By staying patient and sticking to your investment plan, you’ll find success just as Buffett and Druckenmiller have found over the decades.
Dividends pay even when markets crash!
Remember, when markets crash dividends keep coming in. When markets crash there is no better feeling than just keep getting paid.
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https://www.businessinsider.in/slideshows/miscellaneous/put-all-your-eggs-in-one-basket-and-watch-the-basket-very-carefully-here-are-13-brilliant-quotes-from-billionaire-investor-stanley-druckenmiller/slidelist/68189821.cms
Wow. How incredibly tone deaf. Have you bothered to consider that older folks maybe don't have years ahead of them to regain considerable losses? That it's terrifying, if you're older and can no longer work, and maybe have health issues, to see your hard-earned savings dropping -just by some moron's whim? A lot of us don't see this as "opportunities for longterm wealth" - we HAD longterm wealth, which was stolen from us by stupidity, selfishness, and greed.
This was great and helpful article, thank you!!