Everyone is a professional investor when the market is growing. But almost all investor go wild and doesn’t know what to do when there is a market crash. The money you have invested is suddenly in trouble and you are worried that your hard-earned money will be lost forever. After reading this post, you will learn how to minimize these risks and where you can invest during this time to avoid wiping out your money. Some of these measures are the old but gold standard and some are new and you should try to follow them.
What is the first thing you need to do when there is a market crash?
The very first thing you should (must) do whenever there is a stock market crash or a major correction is to just sit down and relax. You should never ever sell your holdings during a market crash unless your life depends on it.
Now that you are relaxed, it is time to pull out some money from your reserve cash and buy more stocks based on your previous research and plan. This is one of the most important steps you should do. You might be asking what if the market falls further? That is why you should never buy any stock with all of your money at once.
With all these steps and measures, we will discuss everything in detail. Keep reading and get an exciting offer in the end of this post.
10 best ways to invest during a market crash.
1. Always keep some liquid cash even during brash and boom.
For you to invest during the market crash, you should prepare for the market crash long before there is any stock market crash. One of the biggest mistakes even the advanced investors make is that they have already invested all the money and there is no money to invest now during the crash. But most of these investors didn’t listen to advisors saying always keep some liquid cash in your hand on top of the emergency cash.
You will say, why keep cash when the savings rate is below the inflation rate? I am not saying you should keep the cash in your hand or your bank account. You can keep in FDs where there are no fees for premature withdrawal.
There are other methods where you can get around a 12% annual return but may need 1-2 days to withdraw your money. We will discuss this method in later steps.
The main difference between FDs and this method is that FD will instantly deposit the cash in your account instantly but the latter method may take 1-2 days to cancel from investment and then withdraw to your account.
Remember it is always very important to have some cash to invest in your hand whenever there is a sudden market crash. You can’t invest in the market when there is no cash to invest. Now that we have settled on having some liquid funds in your account always, let’s discuss the next step.
What to do before the stock market crash?
Before there is any stock market crash, you will feel like everything is fine and it will keep going up and up. But you should remember that this is the calm before the storm. You should prepare for the storm during your calm time. You should always have a liquid fund in reserve so that whenever there is a crash, you can use that money to buy new stocks. You should also diversify your assets and avoid concentrated asset investment.
This fund is different from your emergency funds. There is no hard rule but if you look at the mutual funds, their cash reserve is between 2-7% and you should follow this rule too. If you are a small retail investor with only 2-3 lakhs invested, keep around 10-30K so that you can invest meaningfully. If you follow the 2-7% rule, it will be only 4-21K. If you invest 4K during a market crash, you are not using the leverage properly. So, don’t hesitate to adjust based on your requirements.
2. Sit, relax and have some coffee (or your favorite drink), never sell during a crash.
As I have mentioned above, your mind should be calm and don’t think about selling your stocks during the crash. This is the second biggest mistake an investor makes. Since most of the investors have zero liquid cashes to invest in and they have invested all their money during a market boom, they think that this crash will rob all their money because there is nothing left.
If you have followed the number one step, you will have some cash in your hand and your mindset will change from sell sell!!! to wow! big chance, which one to buy since the price has come down a lot. This is why disciple in investing is very important during the market boom to be a successful investor during a stock market crash.
You will know how to invest in the stock market during a market crash if you follow step one mentioned above during a market boom.
What to do when the stock market goes down?
As I have said before when the stock market goes down, you should just sit and relax, never think of selling any of your stocks until and unless your life absolutely depends on that fund. To avoid this condition you should follow point number 1. And you should buy and increase your portfolio size based on your previous research.
3. Always keep track of 6-8 companies you want to invest in newly or invest more.
I think this is self-explanatory that you just buy some random stocks when there is a crash even if you have funds to invest. Keeping track of 6-8 stocks is one of the important steps you should follow before you ask, what should I invest in when the market crashes. You should invest in those stocks you have been keeping track of. This way you know what is a good price for those stocks and what are their revenue, profit, and other details.
Even if you have some reserve cash and you haven’t sold any of your portfolios but you didn’t know any of the stock conditions, you are lost on which stocks to buy. This is when you will make another mistake i.e. you will start asking your friends which one to buy and ask for stock signals on social media and after some months that investment becomes useless.
Out of the 6-8 stocks, you will find one or two stocks that have become good to invest in based on your previous analysis and due to the current crash, prices have come down. This is exactly how you should invest during and when there is a market crash.
Best stocks to buy during market crash.
The best stock to buy during a market crash is the stock you have been following and you know that stock is reasonable to buy at the current price considering the revenue, sales, management structure, etc. You shouldn’t buy any stock based on stock signals from online and friends without your own research.
4. Diversify, diversify, diversify.
People always talk about diversifying your assets but never really talk about what diversification means in reality. There are different types of diversification i.e. investing in different asset classes, or invest in different assets under the same asset category. For example, you can buy different stocks in the stock market but they all may fall under a single category. So, if that sector goes down, all your stocks may go underwater.
Or you can buy different stocks in different categories so that some of your investments will make up when some sectors are down. But again when there is a crash, it is most likely that all the sectors will be down. So, even with this kind of diversification, you are still vulnerable to the overall market crash.
Or you can invest in different asset classes like in the stock market, real estate, crypto, and other investment options like invoice discounting and lease financing. We will discuss the last two options in the next point in detail. This is the method I told earlier in this post about alternative investments. This option will work the best when you manage the proportion properly.
While we are talking about diversification, I will tell you how to get the best rate for fixed deposits. To the best of my knowledge, INDMoney App and fintech money apps like the Niyo bank account offers the bank FD rates. INDMoney App sometimes offers 7-8% annual rate which is almost double that the other normal banks offer.
I have written a detailed review of INDMoney App. Click the link below to read it. Apart from the best FD rates, it will give Rs. 750 worth of US Stocks when you load Rs. 5000 in your US stocks account. Investment in US stocks is free except for the regulatory fees. Read the full review below to know more and you will get the Coupon Code for free US Stocks.
5. Invest in alternative investment options like TradeCred, Grip Invest, etc.
Most of us are small retail investors including you and me and don’t have big money to invest in assets like real estate or become angel investors. We are left with limited options like the stock market, FDs, and bonds.
Being a small retail investor, you should consider investing in alternative investment platforms like TradeCred (invoice financing) and GripInvest (leased financing). These are fixed return investments ranging from 11 to 14% and any ups and downs in the stock market won’t make a change on your investments in these assets.
Invoice discounting is a way of you funding a company providing something to another company. After the invoice is paid, you will also get paid. For example, company X needs 100 kgs of packaging box from company Y, so company X sends an order with an invoice to company Y worth Rs. 50000. Let’s say company Y needs only 38K to fulfill that order worth 50k. But company Y doesn’t have that Rs. 50000 in cash now so he needs to raise 50k from investors so that company Y can deliver the order.
However, any investor including you won’t invest any money just because company Y needs 50k. So, company Y shows that invoice showing that company X really ordered it and says that the payment from company X will be on an escrow account instead of directly to company Y so that the escrow manager can verify and send the payments to the investors.
This is where TradeCred comes to light. TradeCred is the escrow party and manages everything. It pays you around 11-14% return. There are other companies but TradeCred is the only one with zero default cases till now since its inception.
6. Make sure your emergencies are covered even during a market crash.
Most of the retail and new investors’ perception of an emergency fund is that whenever there is a market crash, they will just sell some of their stocks and manage it. This can be one of the biggest mistakes you can make as an investor. This hard lesson was learned during the shutdown of COVID-19. Overnight, your job is lost, market crashed and you have no money left to manage your emergency.
Now you have to sell your stocks to have that have already crashed to around 20-30% which you planned to sell when it was booming. This could have been avoided if and only if you had managed the emergency funds throughout even when the market was booming.
Many experts suggest that you make sure you have 6 months of your monthly expenses. It is in the hope that within the next 6 months you will be able to find a way to earn again. You can put this 6 months budget in an FD that pays you the highest possible return. As I have said above, make sure that the bank won’t charge unnecessary charges when you break that FD prematurely for any reason.
7. Keep a very small portion of your portfolio in crypto.
Let me be very clear, invest only in very top cryptos like Bitcoin, and Ethereum and it should be a monthly investment no matter how small that investment is. Do not buy extra during the hype and also do not buy more during the dip. You don’t know how long the dip will be and how short the hype will be.
Personally, I use Vauld to invest monthly and I keep only around 2-5% of my whole investment in crypto. So, even if it goes bust, it will be only around a 2-5% loss but if goes up, the sky is the limit. Vauld offers FDs of most of your crypto assets and it will give around 6-13% yearly return rate. Check out the link below to read more about Vauld where I have written a detailed review.
8. Set an objective for every investment and follow that strictly.
Whenever you are putting money as an investment in any stock or asset or instrument, you should know your aim and objective. Without it, your money is a lost cause. It is like you are shooting randomly in the air not knowing what is your target.
For example, you should set an objective where you will sell whenever one of your stocks hits 60% or 80% or 1000% no matter what the current market condition is. But you should also make a reasonable aim like 1000% is highly unlikely. There are also certain investments you think is life long.
You should make clear distinctions and follow your rules strictly so that from time to time you get some realized gains instead of some numbers in your Demat account.
9. Turn off unnecessary panic news
Yes, you need to keep updated with news but stop taking unlimited news most of which is complete garbage. What important world events taking place that will affect the stock market and local news. That is all you need. Every minute of news is necessary for traders not investors.
10. Indices will never go to zero but a stock can.
Any company in the world can go bust doesn’t matter how large it is but no Indices will go back to zero. There will always be top 50 companies in NIFTY 50 and even if all 50 companies go dark, another 50 will replace them.
So, investing in index funds be it mutual funds or ETFs is one of the safest ways to invest with moderate risks. Take high risks you will get either high rewards or the worst rewards.
Next stock market crash prediction?
Even God can not predict the next market crash. But you get indications like high inflation around the world, major oil market changes, and wars around the world. etc. If you invest in index funds, you need little worry.
Are bonds safe if the market crashes?
Bonds are not as safe as people think during a market crash. Remember the 2008 financial crash? It all started with sub-par bonds issued. So, if there is no money in the market, then your bonds may get defaulted. Invest only in government bonds if you think you should invest in bonds.
Should I pull My money out of the stock market in 2022?
As I said, you shouldn’t remove any money out of the stock market until and unless your life is dependent on that money or if your goals are met. To be able to do this, you should follow all the 10 steps listed above about how to invest during a market crash.
My Favorite Stock Trading/Investment Tools
Best broker and mutual fund investment for beginners – Groww – Click here to signup, activate your Demat account & Get Rs. 100 for free.
Best charting platform – TradingView.com
Trusted Forex broker for Indians – Exness.com (Zero swap charges).
Disclaimer: All investment strategies and investments involve risk of loss. Nothing contained in this website should be construed as investment advice. Any reference to an investment’s past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit. Any ideas or strategies discussed herein should not be undertaken by any individual without prior consultation with a financial professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal financial objectives, needs, and risk tolerance. This website expressly disclaims any liability or loss incurred by any person who acts on the information, ideas, or strategies discussed herein. The information contained herein is not, and shall not constitute an offer to sell, a solicitation of an offer to buy or an offer to purchase any securities, nor should it be deemed to be an offer, or a solicitation of an offer, to purchase or sell any investment product or service. Everything discussed here is only for educational purposes. Do your own research before investing.