bear market

Three Things To Do When The Stock Market Tanks

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When you say the word Recession, it usually means a negative thing.  You might start thinking about your finances, worrying that you will lose money with your investments.  It’s the same thing with the words inflation and bear market.  However, when you hear all three of those things talked about together as we have recently, it can produce a lot of anxiety about your retirement accounts.

And if you’re reading this in March or April of 2022, there is a lot of anxiety in the world right now.  There is a new war going on in Europe.  Gas prices are skyrocketing.  Inflation is out of control.  The stock market has had a correction and could possibly enter an official “bear market”.

After just getting through the health scare of the pandemic over the last 2 years, it seems like there is something always threatening us.  And it’s easy to start getting into a “protect-mode” of securing our finances.

Are there things we should be doing?

Yes.

And there are things we shouldn’t be doing as well, financially speaking.

Here are three things you should do (and should not do) when the stock market tanks.

What You Should Not Be Doing

  1. Freaking out. I know, easier said than done, right?  However, if we take a moment to consider, are there many examples of positive outcomes that happen just because we freaked out?  No, probably not.  It’s usually the opposite.  We usually make better and more rational decisions when we step back from the situation and critically look at it with a calm frame of mind.
  2. Selling all your stocks. This is a tough one for many people.  It’s easy to see all the negative things going on in the world and just want to protect your investments by selling everything.  But history has shown us that this is usually the wrong move.
    1. Over time, the stock market has gone up. Trying to time the market is a fool’s game.  What most people end up doing is selling when the market drops (thinking it’s going lower) and then buying at the top (when it seems like all is good in the world).  Staying put has been a proven method of increasing your wealth.
    2. Missing out on just a few days of “recover” in the stock market will make your overall returns much lower.  People have studied this extensively:  if you attempt to time the market, you often miss out on the quick rallies that end up eliminating most of the drawdown.  If you miss out on those, your yearly performance suffers greatly.
  3. Deciding not to invest. The truth is, if you don’t take care of your own retirement, no one else is going to do it for you.  Unless you’re one of the very few who have a fabulous pension, money is going to be very tight in retirement.  So, you must plan for it today.  And the best money maker in the world is the stock market.  So, you need to be involved.

What You Should Be Doing

  1. Taking an overall look at our financial situation. This is one of the best starting places because it forces us to step back and get a higherwhat do do with your finances when the stock market tanks perspective on where we are.  This is a great time to look at our debt and if it’s the right sort of debt to be in (like a reasonable home mortgage debt) or the wrong sort (like high-interest credit card debt).  Taking care of your finances will leave you with more peace of mind when things get tough, whether it’s higher prices at the gas station or when you’re at the market buying food that now costs more than it did last year.  Prepare for the unexpected.
  2. Dollar-Cost-Averaging your buys. This is a great technique.  How do you do it?  Well, it’s extremely easy.  You just set routine “buy” orders in your account.  If you have an employer-sponsored plan such as a 401(k) or 403(b), regular, systematic contributions happen automatically.  This is just buying little bits at a time whether the stock market is up or down.  You’ll buy fewer shares when the market is at all-time highs (but you’ll be enjoying those higher prices in your portfolio value) and you’ll buy more when the stock market is lower.
  3. Buying things on sale! Most people tend to get freaked out when the market drops.  But instead, consider this to be a great sale just for you! buy things on sale when the stock market tanks Instead of worrying that your “overall” portfolio is down 20%, consider this a great sale you get to participate in!  As the market rebounds back upwards (which it has historically always done), you’ll profit from it greatly.  Remember, when the stock market tanks, think “opportunity”.

Summary

So, even though things seem to be stressful right now, it’s a good time to look at your financial priorities.  Don’t make rash decisions.  Are there easy ways to cut spending?  How about saving?  Weeding out the extra, unnecessary expenses will leave you with more cash flow for when things are tough.

And be very careful before you start manipulating your long-term plan with your stock market accounts.  As you’ve seen, there are three key important things to do (and three not to do) when the stock market tanks.  And believe me, this will happen every few years so be prepared!

By sticking to a proven plan, you’ll enjoy the fruits of your labor once you’re through this crisis.

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David the Wealthy RN

David is the creator of The Wealthy RN. Although I'm not your financial advisor [nor offering financial advice], I can share what 20 years of hard financial lessons have taught me: how to effectively budget, save, and invest creatively. Read my story on how I went from tens of thousands in debt to accumulating hundreds of thousands of profits.

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