3 Ways to Weather a Stock Market Downswing

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You bought stocks. Now they're down.

What do you do?

3 Ways to Weather a Stock Market Downswing

Now, unless you sell your stocks when they're down, you're not locking in the loss just yet, because they can still recover. 

Stock market downswings exist because there are also upswings—look back on the 2008 financial crisis, or even more recently in March 2020. During these periods, the stock market pretty much fell as a whole, but it bounced back up eventually.

Here are 3 ways to ride out a stock market downswing:

1. Make sure you have an emergency fund

If you invest ALL of your money in the stock market, you're likely going to worry when market is down. This fear is unhealthy and it can be avoided by having an emergency fund

By having access to a stash of money that isn't affected by the stock market, you're going to have one less worry when the stock market is down.

2. Evaluate your investments

If your investments are trending down, consider doing any of the following:

  • Leave them as they are
    Don't touch anything, and just wait it out.

  • “Buy the dip” responsibly, and don't panic buy
    If you know you have good stocks, it might be time to “buy the dip”—the idea is to buy more stocks when the prices are down, so you have a chance of profiting in the future. But it's best not to overdo it—buy only if you have spare cash, and don't dip into your emergency fund.

  • Sell some of your investments, but don't panic sell
    If you have stocks that aren’t really making or losing money and you're not sure about their potential at all, consider selling them off, and cash them into your emergency fund, or use the money to instead "buy the dip" into stocks with foreseeably better potential.

    But, if you know you have good stocks and they're down, it's best to avoid panic selling them. If you invest $10,000 in a stock and they're down to $8,000, selling them means you're locking in the loss of $2,000. If you wait it out, there's a chance it may swing back up to $10,000 or beyond.

3. Consider deleting your investment apps and check the market sparingly

Much of money management is mental.

If you're not confident that you can mentally see your stocks going on a skydive, but you know they're stocks with good potential, then the next best thing you can do is avoid checking your investments too often when the market is down. 

Stock investment apps make it so easy for us to obsess over the market every other day, and when they're down, perhaps it's not a bad idea to delete the apps off your phone, and only check on your investments once a month or every few months.

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