For months, investors have been on the edge of their seats waiting for their portfolio values to fall. Stocks have been grossly overvalued for months, and many believe the conditions are in place for a near-term recovery stock market crash. In fact, there’s a good chance that stock values will drop before the end of May.
Of course, without a crystal ball it is impossible to predict when the next stock market crash will occur. But it’s important to be ready for one at all times, and that includes knowing what not do if things go wrong. Here are three pitfalls you shouldn’t fall into if stock market volatility hits soon.
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1. Stop investing
Many people assume that when stocks crash, the best idea is to just sit back and watch. But in fact, one of the best times to invest is during a broad market. correction or crash, because that’s when you’re likely to find stocks selling.
Suppose you are looking at a company with a stock price of $150. If its shares fall to $120 during a stock market crash, you have a great opportunity to grab them at a discount – and why would you want to miss that?
In fact, it’s actually a good idea to store money before a stock market crash so you have the option of buy stocks as their value declines. Don’t make the mistake of dipping into your emergency fund – this money should be reserved only for unexpected bills.
2. Pause your contributions to your retirement plan
Just as you might be inclined to avoid buying stocks when the market is falling, the idea of pausing your pension plan contributions enter your mind. But remember, funding an IRA or 401(k) doesn’t just give you money to spend in the future — it can also protect more of your income from damage. IRS right now (assuming you contribute to a traditional retirement plan and not a Roth account). And that’s tax relief you really don’t want to give up. As such, if you can afford to continue putting money into a retirement account, stick to that plan.
3. Try to time the market by buying stocks at an absolutely low level
Stock market crashes usually don’t last a single day. They can last for weeks, months or, in more extreme cases, years. Many investors spin the wheels during stock market crashes trying to figure out when stocks will truly bottom. But it might lead you to To lose on the best buying opportunities.
Rather than trying to time the market when stocks are down, keep a watchlist of companies you hope to invest in and jump when their shares are on sale. In fact, rather than asking yourself if you’re getting the lowest price for a given stock, ask yourself if you think that price will rise over time. If the answer is yes, then it’s a good time to buy. Period.
Will the stock market crash in May? It might, or maybe it won’t. But at some point, stocks are likely to crash, even if only for a short period of time, and knowing what not to do when that happens could help you get out of trouble. a downturn not only unscathed, but richer than at the start.
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