Investing in the stock market is such fun. Your money rises and rises. There seems to be no end to the money you can make in the stock market. This is the bull market.
Then all of a sudden….A stock market crash. Your money has just vanished in the stock market crash. There is nothing you can do about it. Worse…you don’t feel like going anywhere near the stock market. This is the bear market.
Fortunately you have not made the mistake of removing your money from stocks. The stock market is recovering and your stocks are slowly rising again.
But you have a question….How to survive a stock market downturn?
You want to make money in the stock market. You have to learn to ignore volatility. The stock market rises and falls each day. This should not worry you. You need to think long term. If you invest in good quality stocks (stocks with good fundamentals) and stay invested for 3 to 5 years, it is likely that you will get a good profit from your investment. Why worry about the daily rise and fall of the stock market?
If you are a long term investor, all you need to do is stay invested in stocks. Just as the sun rises and sets each day, the stock market goes up and down. Stock market has crashed….No Problem….You just need to stay invested in the stock market and wait till it rises again.
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Remember this saying by Peter Lynch
"You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets."
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Do not try to time the market
You feel that stock markets are going to fall. You remove all your money from stocks, hoping that you can invest at lower levels (when the stock markets are down). Unfortunately the stock market went up so fast , you could not do anything about it. Stocks were too expensive for you to purchase. You lost a brilliant opportunity to make money in the stock market.
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“Do not try to time the market. Instead spend time in the market”.
When stock markets are in a bull run, (rising rapidly), your small and midcap stocks do well. Make sure that not more than 20% to 30% of your portfolio, has small and midcap stocks. The remaining 70% of your portfolio, must have good large cap stocks. Over the last couple of years as midcap stocks had done well, their share in your portfolio has also gone up. After stock markets have crashed, the value of your mid cap stocks has come down. You now cannot sell these stocks as their value has fallen. It would be better for you to make a fresh investment in large cap stocks, so that your portfolio is balanced in the right proportion. You can buy these good quality large cap stocks at lower levels, as the stock market is down.
So why fear a stock market downturn. It is a way of life. Just as life has it’s ups and downs, so has the stock market. Invest with confidence and watch your money grow.
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