One of the golden rules of investment is: “Do not put all your eggs in one basket.” By now you already know that life is queer with its twists and turns. The way it is in our everyday lives, is just the same way it might be in the business world. Hence, in the same vein, no human can boast of having the powers of knowing what might happen on the earth the next minute.
The stock market industry is such that can be volatile. In fact it is true that the stock market all over the world have always had the high times, as well as the low times. Those who have been dealt a sad financial blow by the stock market know that staying afloat to survive a stock market crash is very key.
Whether you area a beginner or you have been in the stock market investment for donkey years, then you may want to consider the following tips that is capable of helping you bounce back again after you might have lost some good cash to the crashing economy.
How to Survive a Stock Market Crash
a. Never Be a Borrower
Experts have advised that it doesn’t in any way pay to borrow to buy stocks. Whilst, some who have done it in the past might have scaled through the hurdle of not being saddled with paying back even before the stock matures, you might not be too luck with this. For that reason, it is important that you trade stocks with your own money.
b. Stay in the Game
Although, you might have been wounded from the stock market crash, but running off and withdrawing is not the solution. What then can the solution be? The solution would be that you stay in the game. The deed has been done and selling your stock might in no way be the best of solution now. So, the rule of thumb is to stay and watch if things might pick up again.
A crash in the stock market might indicate that you consider the alternatives that area available to you. One of the alternatives might be that you switch to commodities since stocks may have gone down the radar. Commodities like the gold might still be able to console you whilst you wait starry-eyed that one day the stock would pick up.
d. Time Would Tell
In the period of the global meltdown, when there was a global meltdown in 2008, there was nothing people could do. No amount of regret could bring the losses back. Therefore, there was the need to be patient and hopeful that all would be well. Hence, in a situation like this, the solution would be to wait for time to tell. Nothing is permanent, therefore someday the stock would pick up again.
e. Diversifying is Key
It is important that in the face of a stock market crash, that you think of ways to measure up. One of the ways to do this is by diversifying. This is because some markets go down the drain than others. For that reason, investing in different things might be the key to surviving even in the midst of the down turn. Hence, taking a cue from this is important.
f. Channel Investment into Real Estate
It is no longer news that one of the greatest investments that you may likely do is the real estate. This is because oil and other investments may crash, but with real estate you are sure to have an appreciating portfolio, Therefore it becomes imperative that after you might have experienced a sad bow by the stock, that you bounce back with real estate.
g. Do a Thorough Check before Investing
So, by now you know that it isn’t the end of the world that you were involved in the stock market crash. For that reason, it is very important that you have a pre-flight checklist where you are able to review the investments plan available before making a financial commitment. This would help you avoid subsequent stock market crashed in the future.
h. Prepare For the Worst
Once you have received the news that there is a crash in the stock market, and you have been brooding over how much you might have lost, then you have got to prepare for the worst. The stock market may continue to plummet and you do not want to die of a heart attack when you hear things have gone astray. So, the key is that you prepare for the worst.
i. Don’t Be In Haste to Sell
Another rule of thumb is that you must not be in a haste to sell off your investments you have during the down period of the stock market. You have got to first of all look before you leap. Be sure that you wait to see if the market would stabilize before looking to sell your stocks. This is so that you do not hastily make the decision of selling off whilst the market is still at the lowest ebb.
j. Have Some Money Set Aside
Whilst, your investment might have taken a bad turn, then it is important that you set aside some money so that you can invest in some future bull markets. It really does pay to make hay whilst it is sunshine and for this reason you would need to secure your future investments with the right moves.
Lastly, do remember that losing your investment to the stock market is not the end of the world. Rather, it only means that you have got to learn some basic lessons about the stocks so that you do not fall victim next time. For that reason, be strong to dust yourself off and try again and soon you would be smiling again.
7 Low Risk Ways to Diversify a Stock Investment Portfolio
With regards to stock investing in particular, that rule simply warns against putting all your investments in a single stock, no matter how promising or lucrative it is. In other words, you should diversify your stock investments, as this is a smart way to reduce risk. Though it won’t completely eliminate risk, diversification spreads your investments, so no one stock will be deadly to your portfolio.
As commonsensical as it is, diversification unfortunately is lost on some investors when they lock on to a “hot” stock or get involved in a situation where emotions overcome good judgment. Such investors will hardly want to learn how to diversify their stocks.
But then, there are other stock investors who actually understand the importance of diversification and agree that it’s a smart strategy, but have no idea how to implement it. If you are one of them, then you will find following tips on stock portfolio diversification very helpful.
1. Invest in different stocks
Buying stocks or shares is a wonderful way to invest your money, especially if you are doing that for the long term. But you must always resist the temptation to put all or most of your money into one company’s stock, even if it’s presently a “hotcake”. You never know what could go wrong with what stock in the future. The most sought-after stocks today might later turn out the most risky in a couple of years time.
The best way to really diversify your stock investment is to invest in a number of unrelated industries. In case you didn’t know, buying different stocks within the same industry isn’t diversification. If, for example, you held stocks in a homebuilder, a major home retailer, and a building material supplier, you would not be diversified. Why? The reason is because your investments are all within a single industry, which means they are likely to be affected by the same economic factors.
2. Invest in companies of different sizes
Aside choosing your stocks by industry, you should also consider the sizes of companies you are investing in. Ideally, you should invest in big, middle-sized, and small companies, as measured by market capitalization.
Contrary to what most people think, small and medium companies’ stocks appreciate quickly because they offer the most opportunity for growth. However, these companies are also the most risky to invest in, as they are not as resistant to market and economic threats as big companies are.
3. Know when to get out
Just as you are investing in stocks for the long term doesn’t mean you shouldn’t keep an eye on market prices. Don’t leave your investment absolutely on autopilot. Though stocks pick up again after tanking temporarily in most cases, there are times, when they go down permanently. And before this happens, many market indicators would have predicted its likelihood.
So, as a stock investor, follow market news and trends, especially as they affect your stocks. When there are indications that certain stocks you are holding might depreciate permanently or for longer than your investment term, sell them off and invest your money elsewhere.
4. Keep some part of your portfolio in cash
Though cash might not provide much of a return when interest rates are low, having some part of your portfolio as cash is always good. So, always keep a fraction of your total portfolio in the form of cash. This could be short-term treasury issues, bank CDs, money market funds, and so on.
5. Invest in index or bond funds
As a stock investor, you should consider adding index funds or fixed-income funds to your portfolio. Investing in securities that track various indexes makes a wonderful long-term diversification investment for your portfolio. By adding some fixed-income solutions, you are further protecting your portfolio against market volatility and uncertainty.
6. Mix up growth and value stocks
A growth stock is a company stock that tends to increase in capital value rather than high yield income. A value stock, on the other hand, refers to shares of a company with solid fundamentals that are priced below those of its peers, based on analysis of price/earnings ratio, yield, and other factors. Both types of stocks have their pros and cons, and it is highly recommended that you mix both in your stock portfolio.
While there are many other ways to diversify your stock portfolio, implementing the tips in this post would be enough to help you achieve smart diversification. However, the most important thing is to ensure that not all your stocks are subject to the same economic and market influences.