We publish this text while the market is relatively calm, but that idyll for the investor can change in the blink of an eye: all it takes is a small spark for everything to collapse.
Together with the crypto platform Currency.com, where you can buy tokenized assets and cryptocurrencies, we tell you what to do when the market falls. The short answer is, don’t panic. For a longer answer, see the story below.
Prepare in advance
Virtually no one knows when a crisis will happen and everything will collapse. It’s hard to predict, even harder to get out on time and sell assets at a profit. The best thing is to always be ready or, in other words, to diversify your portfolio from the very first investment.
- The most important thing is to be aware of why you are buying each particular stock. Study its financial condition, its plans for the future, and its behavior during previous crises. Don’t invest in Tesla just because of cool Elon Musk, or invest in AMC cinemas because a group on Reddit wrote so. Know what you’re investing in.
- Without exception, everyone advises investing part of your portfolio in gold and bonds, assets that don’t react as quickly to the surrounding market. In addition, gold is considered a defensive asset and may even rise in value in difficult times.
- Invest some money in dividend stocks. This is simple: the value of the stock may fall, but the dividend income will allow you to earn and perhaps even outweigh the fall.
- Don’t invest everything in one industry, in one country’s stocks, or in buying one cryptocurrency. Betting on one thing is a casino: even the most seemingly unsinkable companies have fallen. Not so long ago, for example, Germany’s largest technology company, Wirecard, literally collapsed in one day in Europe, even though everyone was sure that nothing like that could happen. Diversification is important.
- If you’re new to trading, and trading isn’t your profession, it’s better not to use leverage. Before you know it you can not only lose everything but also owe everything.
All of these actions should be taken before the crisis hits. It may be too late to reformat your portfolio during a general downturn.
Currency.com crypto platform allows to build a complete portfolio: there are tokenized stocks, bonds, indices, tokenized commodity market and cryptocurrencies. The investor gets access to a large number of tokenized exchange-traded assets, with no hidden fees but great opportunities. For experienced investors, high leverage.
The second important point is profit-taking. Bitcoin grew from $20,000 to $30,000 – sell a small percentage of your portfolio and take profits out. Grew another to $45,000 – repeat. Same story with stocks.
Fixing profits allows you to protect yourself from losing all your money in the future, and also gives you access to cache that you can use to enter the market during a crisis. But more on that later.
Do not panic and do not sell
When the fall has begun, it’s best not to panic and not to rush to sell everything, trying to minimize losses.
First, there is always the chance that it is a small correction and in three days everything will go back up: you will lose twice, selling cheap and buying expensive. Secondly, decisions to buy and sell stocks should be made with a cool head. That’s why if your terminal is all red, close it. Otherwise, you’ll make a mess.
One of the most popular investing strategies is playing the long game.
In this case, even the biggest drop will pay off in the future. You shouldn’t sell worthy assets cheaply, it’s better to wait it out. So my advice again: when the terminal is red – close it and get away from your computer.
And to buy – you can
Experts advise not to sell, but to buy – quite possible. To do this, it is best to have some free cash and time for market research.
- During a crisis, even quite strong and financially wealthy companies’ stocks fall. When you have access to financial resources, stocks or cryptocurrencies can be bought.
- It is important to understand that a big crisis often leads to a market cleanup: companies with a bad financial history may not survive. That’s why it takes time to study a company’s financial condition and only then invest in it, instead of blindly buying something that is cheap.
The conclusion here is the same: we do not buy cheap shares of any companies, but we buy cheap shares of good companies, which are able to quickly build up their losses. Most often these are companies that have fast access to the consumer, and therefore to revenue growth: stores, banks, tourism, IT-business. Experts even advise you to have a separate document where you make a list of stocks that you can buy during a downturn – prepare in advance.
If you are a beginner and not yet confident in your abilities, you can create a demo account on the crypto platform Currency.com, get funds and practice, learn the terminal, figure out what and how it works. It’s free, you just need to do a quick registration. For those who don’t have enough knowledge, Currency.com has the “academy”, which teaches how to trade, describes the main trading strategies, and so on. Access to the knowledge base is also free.
The standard rule is to go into a crisis without credit. It’s the same in investing: if you see chaos going on around you, first take care to close any positions where you are trading “leverage. If your portfolio is “down,” you can wait it out. But when you have credit hanging over you, it can end badly. We close and do not use this tool during a falling market.
Falling in panic in the media
Every investor should be aware of his actions and understand why he invests in each particular asset. The fact is that you can find dozens of different opinions on each particular subject on the Internet: some people write that bitcoin is over, while others say that its next target is close to $100,000. A person believes what he wants. It mustn’t be like that: when you make investments, the press must be a tool to receive information, but not an adviser. Especially in times of crisis and general chaos.
Play the long game
Crash, crisis, and decline are constant attributes of the market. You must be ready for it and teach yourself to take it for granted. History shows that in the long run, we will still see growth. So if you invest with a planning horizon of 10-20 years, the crisis shouldn’t be a problem. The main thing is to prepare for it ahead of time.