What are the tips to follow to avoid a stock market crash?

Published on : 21 April 20204 min reading time

From time to time, the stock market gets a little “psychotic” and takes a break from its usual routine. Instead of going up and down in small steps, it will take investors on a wild roller coaster ride. In a single day, the market can take a dizzying plunge. So learn how to protect your investment with the right strategy and avoid making the wrong decisions.

Think long term and avoid uncertain investments

A tip for investing capital gains over the long term is not to panic if the value of your shares is eroding rapidly. It is not advisable to sell them to avoid another stock market crash. One very immutable fact about the stock market is that it is subject to ups and downs. Stock prices would suddenly rise and selling would only make it harder to recover your portfolio to meet your long-term financial goals. The stock market is like a short-term voting machine and a long-term weighing machine. Therefore, creating long-term capital requires buying shares in a good stock market.

Short selling shares at a higher price in the hope of buying them back at a lower amount has proven risky for many investors. They all quickly realized that it is always better to have a cotton shirt on your back than to suck and fail to get a silk shirt and have no shirt at all. People believe that the investment experts and the big brokerage firms will be able to predict the market. Never enter into a short sale contract when the stock markets are falling. Instead, hold and invest more if you can earn good returns in the future.

The market has fallen. Now you can invest. Many investors fall prey to the idea of investing in penny stocks. You may think you will get more stocks when you buy penny stocks. You will get very few shares for the same amount if you choose to invest in large or medium-sized companies. It’s a universal fact that investing in long-established, successful companies instead of a lesser-known company guarantees you a good return over the long term. To avoid a stock market crash, you will need to avoid investing a large amount in unknown penny stocks. It is always advisable to take calculated risks, not blind decisions. By investing in a penny stock, you take the risk that all successful investors consciously avoid.

Knowing how to influence the share price

During a stock market crash, which is an ideal time to start investing, don’t wait for the markets to fall back. It is difficult to identify the fund and invest. By the time you recognize the fund, the market could have bounced back.

Stock market comments in the media always confuse us. When the market was at 20,000 points in December 2007, all the media were predicting and analyzing the possibility of it reaching 30,000. But the markets subsequently collapsed. When it dropped to 8,600 in November 2008, all the journalists were predicting and analyzing the possibility of the market dropping back to 3,000, but it bounced back.

Prudent and smart investors understood this and invested when the market started to fall. They staggered their investments over a period of time. They followed simple strategies such as a systematic investment and transfer plan.

Investing in a high-yield portfolio

Some inexperienced individuals invest in high-yield portfolios with high exposure to mid-capitalization. They then realized that their portfolios fell 15% to 20% during the stock market crash in only 3 to 4 months. Their panic and decision to sell their shares to reinvest in fixed-return investments such as bank or corporate deposits is wrong, as it is always advisable to wait.

The current loss and reinvestment in fixed deposits would take longer to recover the capital and realize significant returns. The solution is to hold on to the equity portfolio and be smart to buy more shares for long-term wealth creation.

A final piece of advice is to never let emotions or short-term fluctuations alter your investment decision and always buy in a safe haven.

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