Look I get it. The stock market currently reminds you of a beach where the ocean has withdrawn itself and all that’s left for you to see are the wrecks of sunken ships.
Not to worry my dear. I am here to guide you through these treacherous waters and to not let the sirens drag you to the depths. Here’s how you can actually benefit from a stock market crash.
Run toooooo the hilllllls
What does this iconic Iron Maiden song have to do with investing? Well, I Just want to point out what so many investors do when the stock market crashes: they run.
Not literally of course. By ‘they run’ I mean ‘they dump their stocks at a low price and get out’. I’m sorry if I’m calling you out, but that’s a rookie move.
You could compare panic selling to the sirens luring the sailors into the water.
Fear should never be the motivation behind a buy or sell transaction. The trick with investing is a simple one, but not an easy one: you need to put all of your emotions aside.
Want to know more about surviving a stock market crash? Go and check out this blog post: How to stop losing money in the stock market.
3 reasons why you shouldn’t panic sell during a stock market crash:
- The goal is to buy low and sell high, not the other way around. If you sell low you lose money, and if you buy the stock back later at a higher price you lose money a second time.
- You might get rid of a really good stock that’s justing going through some bad times and you will regret selling it later.
- You have put a lot of effort into selecting stocks for your portfolio. Honor your work and stick to your investments.
Tip: Always do your own research when building an investment portfolio. Need help with selecting the right stocks for you? I have got the perfect template for you!
Selecting stocks and ETF’s can be tricky.
This template will help you make the right decision:
- It tells you what criteria to take into account
- It allows you to gather information in one place
- It allows you to compare all products in a very simple way
So, how do you benefit from a stock market crash?
Buy more stocks
When you have the budget for it, buy more stocks. A stock market crash is like a sale: it’s a perfect time to hunt for bargains.
Here’s an opportunity to grow your investment portfolio on a budget. A lot of people are scared to shop around during a crash, because they fear that a low priced stock might not be as good as an expensive one. But this is no different than scoring designer clothing during in an outlet or summer sales.
Be sure to do your homework though. Don’t just buy any stock because it’s cheap. Research, compare and then decide.
Be fearful when others are greedy, be greedy when others are fearful
Warren Buffet
Dollar cost average
Dollar cost averaging is the perfect way to optimize the returns in your portfolio.
What is it exactly?
Dollar cost averaging is a strategy where you invest a fixed amount of money on regular intervals.
Example: you could invest 50 euro every 1st day of the month in an index fund.
This means that you consistently buy stocks (or parts of a fund), regardless of the price. Whenever the market is doing well, prices are higher and you will get less bang for your buck. But during market crashes you’ll get a whole lot more value for that same amount.
This technique lowers the average purchase value in your portfolio and makes sure that your wealth keeps on growing. Dollar cost averaging ALWAYS beats trying to time the market. Consistency is definitely the key to results.