The "Black Monday" stock market meltdown of 1987 destroyed fortunes as many investors lost their entire life savings. People of a certain generation who were around at the time will be fully aware of the risks involved in putting all your eggs in one basket, as many investors did. I'm talking about instances where investors borrowed money to buy shares and used the value of their shares as security. When the markets declined, the value of their shares was far lower than the amount still owed on the borrowed funds.
Since the 1929 Wall Street disaster, the 1987 financial crisis was the worst. Investors need to persuade themselves that another crash won't occur very soon because there were nearly 60 years between 1929 and 1987.
However, when the bubble eventually bursts, share prices can fall rapidly and significantly, leading to substantial losses for investors. This can also have knock-on effects for the wider economy, as companies may struggle to raise capital or finance growth, and consumers may become more cautious about spending. In extreme cases, a stock market crash can trigger a recession or even a financial crisis, as was seen in the aftermath of the 1929 Wall Street crash and the 2008 global financial crisis.
So what are investors supposed to do when markets are falling?
Here are my top five suggestions:
1 REMAIN CALM
Do not be alarmed; markets fluctuate like a rollercoaster. Consider investing in the markets for the long run. You have time on your side if you're young. You still have time to bounce back from a financial setback. You don't need to be overly conservative even if you're 50 because you still have another 15 or so years before retirement. However, someone who can't stand the prospect of quickly declining markets could disagree. Your disposition will determine everything.
If you are approaching what is known as your risk tolerance, a financial advisor will probably recommend more cautious options.
2 REMAIN FOLLOWING YOUR FINANCIAL PLAN
Despite all of the negative press that will undoubtedly follow a crash, it is crucial to remain with your original plan. Your financial strategy needs to account for the likelihood of a decline in the stock market. Investors may experience a rollercoaster ride with shares, but perseverance is rewarded.
3 AVOID ATTEMPTING TO TIME THE MARKET
Sharemarket investors are rewarded over time, not just at certain times. Few investors possess the knowledge necessary to forecast changes in share prices, and those that do and exploit their knowledge for their personal profit are breaching the law since they are engaging in insider trading. When choosing which shares to purchase, investors should first perform their research and rely on their own assessment.
4.SAVE AND INVEST CONTINUOUSLY.
Consistency is rewarded in the market. When there is so much gloom and doom that will come after a crisis, investing in the markets will be profitable. Fortune, as they say, "favors the brave." The benefit of investing when markets are not very volatile and unpredictable is that you can buy stocks for a great deal, and when the market begins to rebound, more and more investors will join the bandwagon, giving it a boost. Consider investing in defensive stocks, such as utilities, healthcare, or consumer staples, which may be less affected by market volatility. Defensive stocks are companies that provide essential products or services that people need regardless of economic conditions. These stocks tend to perform well during times of market volatility or economic uncertainty because they are less sensitive to changes in consumer spending or interest rates. For example, healthcare companies that produce drugs or medical equipment are typically in demand regardless of the state of the economy. Similarly, utilities that provide electricity, gas, or water are essential services that people require regardless of the economic environment. By investing in defensive stocks, investors can potentially reduce their exposure to market volatility and protect their portfolio from losses.
5 .PEOPLE YOU SHOULD LISTEN TO
Financial experts will suddenly emerge from hiding with advise on what you should do with your money after a share market crisis dominates the news for weeks.
Work with a financial advisor or planner who can help you to develop a long-term investment strategy that is tailored to your goals and risk tolerance. A financial advisor or planner can provide valuable guidance and expertise when it comes to navigating the complexities of the financial markets. They can help you to develop a long-term investment strategy that is tailored to your goals and risk tolerance, and can also provide advice on specific investment decisions or portfolio rebalancing. A good financial advisor can also help you to avoid common mistakes, such as trying to time the market or chasing hot stocks, which can lead to poor investment outcomes. By working with a financial professional, you can potentially improve your investment returns and achieve your financial goals more effectively.