The scary thing about stock market crashes is that they can happen when you least expect them to. And while stock market crashes are normal in that they actually occur somewhat frequently, they can be terrifying for investors who aren't used to them.
But the decisions you make during a market crash will dictate whether you survive it unscathed, or whether you end up taking serious losses you don't recover from for years. With that in mind, here are three moves you might seriously regret during a stock market downturn.
1. Selling when investment values plunge
When you buy stocks, you lock in those investments at a certain price. That price can then rise or fall on an ongoing basis.
If you don't sell your stocks while their value is up, you won't make money. Similarly, if you don't sell your stocks when their values declines, you won't suffer losses. It's the latter you really need to keep in mind during a stock market crash.
When investment values start to fall, it can very tempting to cash out investments in an effort to minimize the blow. But the stock market has a long history of recovering from crashes, so if you leave your portfolio alone, you'll give your stock values a chance to come back up rather than guarantee yourself losses that could've been easily avoided.
2. Pausing your retirement plan contributions
The point of putting money into a 401(k) or IRA isn't to just let it sit there in cash. Rather, you're supposed to invest it so it grows into a large sum over time.
You may be inclined to stop funding your retirement savings during periods when the stock market is doing poorly. But that's a mistake. The money that goes into your retirement plan gets tax-advantaged treatment, whether immediately or in the future, so it pays to keep pumping cash into your account even when the stock market isn't at its strongest.
3. Not adding discounted stocks to your portfolio
Many people assume that buying stocks during a market crash is a bad idea. But actually, the opposite is true.
During market downturns, stock values tend to fall across the board. But that doesn't necessarily mean that the companies you're interested in are actually worth less money than they were the month prior. It just means that temporarily, their share prices are down. That gives you a prime opportunity to buy quality stocks when they're less expensive.
For example, if you're interested in a given company whose share prices has been hovering around $50, during a market crash, it might fall to $40. Does that mean that from now on, shares will only be worth 40? Not at all. But if you scoop them up at $40 apiece, you'll set yourself up to profit big time when their values creeps back up to $50 or beyond.
Knowing how to navigate a stock market crash could prevent you from making poor decisions that hurt you financially. Avoid the above mistakes the next time the market takes a turn for the worse — you'll be much better off for it in the long run.
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