How To Protect Yourself From a Market Crash

Trying to live through the COVID-19 pandemic is one of the most challenging things that people have to go through nowadays. It has been challenging everyone in a lot of ways, especially financially. There are expenses to be made here and there, including medical bills, vitamins, and medicines, among others. One might recall that during the first few months of the pandemic, the prices of necessities such as face masks, soap, and rubbing alcohol went skyward really fast, and some people struggled to keep up. 

Budgeting and planning expenses can get stressful in these trying times. | Photo by baranq via Shutterstock

Aside from these, people also have been putting more and more money into the arts. Having to self-isolate in their own homes is not an easy thing for us to do, so people have to be creative in their ways to keep themselves busy and feeling alive. Last year, Netflix gained 8 million subscribers in three of four quarters, and this is said to be a direct result of the COVID-19 pandemic. People also have been practicing new crafts, such as gardening, knitting, and cooking, among others. Even if you do live in one of the most beautiful houses in the Philippines, boredom can still strike you, as you can only do so much. 

The point is that the pandemic made us spend more money, whether it is for necessities or not. A lot of people are struggling to keep up with the expenses, so it is a good idea to look for more ways to earn cash. This is not as easy as it sounds. It has also been increasingly difficult to look for jobs, as more and more companies lay off their employees or even close. You may start a business of your own, but this is not for everybody and not all businesses are going to be successful. A lot of people sold stuff like food online, only to stop it after a while, because people stopped buying, after some courtesy purchases from friends and loved ones. One reliable business, though, is luxury real estate, as people look for houses all the time. They want somewhere nice to spend their time in, so they find properties for sale and luxury house and lot for sale to look for luxury house Philippines. If you happen to be one of these people, do check out Brittany Corporation for luxury mansion house and the most beautiful houses in the Philippines. 

You can earn money long-term through investing without having to leave your home. | Photo from Freepik

One great way to earn extra money? Investing. Getting some shares in the stock market is a good way to add to what one normally earns, because it is passive income. One can easily balance this on top of the work that he does and depending on the circumstances, it can be highly rewarding. While investing may not be a quick solution to one’s current financial situation, it is a long-term financial activity that basically all finance gurus will encourage you to do. This can help prepare one to save up for the future, unexpected expenses, and even another pandemic. 

Investing, though, can be daunting as stock prices do fluctuate regularly, and there is always that level of uncertainty. The stock market can be unpredictable and while some increase and decrease in the price of stocks are normal, a sudden and dramatic decline in stock prices is not. This is called a market crash.

What is a Market Crash

A market crash or a stock market crash is a steep decline in stock prices over a short period of time. This happens because of panic selling and other economic factors that drive people to fear, such as wars, laws, disasters, and even the current pandemic. Market crashes are not synonymous with bear markets, where there is also a decline in stock market prices but in a longer period of time, such as months or years. They do not necessarily happen simultaneously, as there can be market crashes without a bear market, or a bear market without market crashes. 

The parameters to define a market crash are not definite, but generally speaking, they are over a 10% drop in stock market prices over a period of several days. One popular example of this would be the Panic of 1907, wherein there was an almost 50% drop in stock prices in 1907 and the year after, because of copper stock manipulation by the Knickerbocker Trust Company. United Copper shares fell down in October, after a period of rising gradually, and investment trusts and banks fell and had to close down.

The COVID-19 market crash is considered the shortest market crash. | Photo from Morning Star

A more recent example would be the stock market crash in 2020, which is attributed to the pandemic. During the last week of February 2020, the Financial Times Stock Exchange 100 (FTSE 100) Index dropped by 13%. The Dow Jones Industrial Average (DJIA) and Standard and Poor’s 500 (S&P 500) both went down by more than 10%. These are considered the biggest crashes ever since the financial crisis of 2007-2008, wherein the Lehman Brothers went bankrupt and Merrill, previously named Merrill Lynch, collapsed. There was also the liquidity crisis of the American International Group, and all these led to a stock market crash. There were steep declines in stocks around the world. There were many recorded bank failures both in Europe and the United States. 

Buying huge amounts of stocks before a market crash and selling shares during one are ways wherein an investor can lose money in the stock market. This does not need to happen, though, as there is no need to lock in those losses by selling shares that one has already purchased. Also, a stock market crash might be a good opportunity for people to invest, but getting shares during such a period in time would just be speculation. There is little assurance that stock prices would go up, and the investor can only hope that they will.

The 2007-2008 financial crisis in a nutshell. | Photo from The Balance

One thing that one can invest in and not regret is luxury real estate. Living in the most beautiful houses in the Philippines is definitely rewarding anytime. See the Brittany Corporation website for some properties for sale, luxury house and lot for sale, and luxury house Philippines. Spending time in a luxury mansion house will never feel like a loss. 

How to Protect Yourself From a Stock Market Crash

The stock market can be a highly volatile world, and no one can say for sure when a stock market crash will happen. This is one of the downsides of putting a huge amount of money in shares. One is risking his hard-earned money in investing, yes, but stock market crashes are not common and it is not something that people just anticipate. There can be people who make predictions backed by solid and logical arguments, but anyone can make these predictions, and they are often dismissed without much thought and consideration, until they are proven right. Even then, people who can predict these things to happen are not necessarily prepared for them. 

Knowing how to prepare for stock market crashes is a good way to minimize the risks of investing money and even make the most out of stock market crashes when they do happen.

As in most other things, the first tip that you should do is to calm down. Before a market crash happens — that is now — and even during a market crash, do not panic. One thing people sign up for whenever they invest would be the fluctuations in stock prices, and one amateur move that investors do is to immediately sell their shares when a stock market crash happens, thinking stocks can only go down even lower and that companies are going to close. Nobody is helping anyone, or the economy in general, by selling all shares as soon as a stock market crash happens.

Blue chip company logos. | Photo from Libertex

What one can do to prepare for a stock market crash way before it happens is to have a list of the companies he is eyeing to invest in. There are a lot of blue chip companies there that one just knows will exist in the long run. Economic crises happen, but these companies stand the test of time and stay, because of good crisis management, innovation, and top-quality products, among other factors. Have a list of these companies and how much you are willing to put in them when a market crash happens. This is a great way to get a portion of that company at a low cost, when normally you would not be able to afford that big a share. 

What one has to know is that when a stock goes down, it becomes less risky to invest in it. Panickers just see the end after a steep dip in value, but they miss opportunities by being afraid of investing at this time. Stocks from blue chip companies are bound to go up after a crash, so this is one way to see a stock market crash as a financial opportunity. One just has to be brave enough to buy as values fall, not sell. Another brave decision you can make is investing in luxury real estate. Go get that luxury house Philippines that you have been eyeing for quite some time now. Head on to the Brittany Corporation website for properties for sale, luxury house and lot for sale, and luxury mansion house. 

One important thing to keep in mind is the distinction between blue chip companies and lower-quality ones. The market goes down a lot, so an investor has to know how a company will bounce back from these setbacks, by knowing patterns. Stocks from blue chip companies like Apple, McDonald’s, and Johnson & Johnson fall slowly and rise fast, while lower-quality stocks fall fast and rise slowly, making them riskier investments. Blue chip stocks rising fast is a great thing, since it means that you can get a higher return on your investments faster. The fact that they fall slowly is also a good thing, because that means you have a longer opportunity to invest in them while prices are still down, yet another reason to prioritize blue chip companies. 

One more thing that you can do to protect yourself from a market crash is to only invest the money that you can afford to lose. No matter how great a stock looks, do not risk money that you will need in the near future. Investments should come from your extra money, not savings, not your child’s college funds, not your emergency funds. One easy way to lose money in trading is to have to sell your shares when prices are going down, because you need to pay off a debt, pay for something urgent, or make an important purchase. 

Conclusion

There are things that people cannot control, like the occurrence of market crashes. What they can do about them is the way that they prepare, so that not only do they survive through the whole thing, but they also turn things to their advantage. One thing that stops people from making logical financial decisions is fear. A stock market crash can make people panic-sell whatever shares they own, making them lose a lot of money.

Warren Buffet, business magnate, investor, and philanthropist. | Photo from Medium

Stock market crashes happen every now and then, so there really is no need to be afraid. Rather, an investor should look for quality-area crashes, focusing on top-dividend stocks in quality companies. Learning from Warren Buffet, traders should invest in companies that will be around in the next 30 years. Not only will they be prepared for market downturns, but also you should be, too. 

Economic crises do not have to wipe off whatever funds you may have. As discussed in this blog, they can benefit you, given the right decisions. Having some losses here and there is normal and all right, as long as you do not invest money that you cannot afford to lose in the process of investing. 

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