It’s fair to say that 2022 has been a wild year for stock investors. The market spent much of the first quarter in correction territory before regaining ground in late March. But we don’t know what the upcoming quarter has in store.
There’s a distinct possibility that stock values could plummet once again, even if temporarily. But that’s not something that should keep you awake at night. And if you’re eager to reduce your stock market fears, here are a few steps worth taking.
1. Maintain a solid emergency fund
There’s a really easy way to avoid losing money during a stock market crash — don’t sell anything. If you unload investments when they’re down, you’ll lock in losses, whereas if you leave your portfolio intact, you can ride out downturns and come out unscathed.
But what if you need money when stocks are down? You can’t control when life throws you a curveball — but you can prepare by bulking up your emergency savings.
If you make a point to keep a solid amount of money in the bank, you’ll have cash reserves to tap in a pinch. That could, in turn, prevent a scenario in which you’re forced to liquidate stocks during a market crash and lock in losses that are difficult to recover from.
2. Assemble a diverse investment mix
When stocks tank on the whole, your portfolio is likely to lose value regardless of which specific stocks you happen to own. But one way to potentially minimize losses during a downturn is to maintain a diverse mix of stocks.
Now you can do this a few different ways. First, you could aim to own 15 or more stocks across a range of market sectors. Or, you could buy broad market ETFs.
ETFs, or exchange-traded funds, allow you to buy a whole bunch of different stocks with a single investment. The great thing about them is that they take the guesswork out of diversifying, because rather than fixate on targeting different market segments, you can just invest your money broadly. Some ETFs, in fact, effectively give you access to the whole stock market, including larger companies, medium-sized companies, and small companies alike.
3. Plan to invest for the long haul
The stock market has a long history of recovering from crashes and rewarding investors who stick with it. So if you plan to do the latter, you shouldn’t have to worry if stock values fall temporarily.
It especially pays to take a long-term approach to investing if you’re fairly young and are years away from retiring. As you get older, you may want to start shifting away from stocks (without dumping them completely). But if you still have a few decades left in the workforce, tell yourself you won’t be tapping your portfolio until your career wraps up. That attitude alone could relieve a lot of stress.
Stock market crashes are far from pleasant. They also happen from time to time. But knowing how to prepare for and get through one could spare you a world of anguish.
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