Market crashes: How to recover from a crash

Explaining the best moves to make in order to effectively recover from a market crash

Any kind of market crash has the potential to completely change the way that you invest your money if of course, you don’t properly prepare for it. Nobody wants to deal with them, but it’s just a fact that these market crashes are inevitable and a part of everyone’s investing career. Yet, we time and time see a fair share of investors who come out of a market crash in relatively good shape. It’s no secret how they do so either, so let’s go over what needs to be done to properly recover from a market crash.

This is not financial investment advice.
This article will discuss potential decisions to make to properly recover from a market crash.

Do Nothing

Nothing? How can doing nothing lead to anything positive in the future? Well, for long-term investors, doing nothing is actually one of the most beneficial things to do. You see, most investors will be glued to their screens or panic at the news of what most people are saying about the market crash this could lead you to make some rash decision which you most definitely will regret in the future. The time following a market crash is usually filled with fear, so don’t let your emotions get in the way of any of your decisions.

Instead, take a deep breath and isolate yourself from any of the key drivers of fear which may include looking at your portfolio value or constantly reading the news around the market. All this will do is make you more uncertain about your original plans and cause you to sell your assets which you may have been willing to hold on to. As with any other investment decision, you cannot let outside factors or your own emotions influence the decisions you make, so be sure to take some time to relax after a market crash and reassure yourself that things will turn around.

Following a market crash, you will definitely want to sell your assets along with a majority of other people. However, you cannot let emotions influence your investment decisions so take some time to step back from everything and reassess the market before making any other decisions.

Abstain From Selling

As we mentioned, you will most likely feel inclined to sell your assets as prices are now just recovering at back at a reasonable price range. However, this is the worst thing that you can do because you are effectively investing in the opposite way. People who sell their assets following a market crash are buying high and selling low, so if you go ahead and get rid of your cash positions simply because a market crash significantly lowered prices, then you too will fall victim to this mistake.

Instead, you should wait a bit before making any actual decisions. Selling stocks out of panic is the worst thing you could do after a market crash. Successful investing is about buying low and selling high. When you sell after a crash, you do just the opposite. Additionally, if you think you can just cash out for now and then get back in when the market improves, consider this: you have no way of knowing when the market will swing back. Resultantly, there is a big cost to missing just a few really good days in the market, so buckle down and stay patient with the market.

Selling your assets after a market crash means you’re buying high and selling low. Stay patient and hold onto your positions so that you can reap the benefits of an improving market.

Rebalance & Restructure

When the time finally arrives to actually make portfolio adjustments and investing decisions, it’s important to assess how your portfolio was impacted by the steep decline in prices. This way, you can see where the most damage was done and use this information to restructure your asset allocations in order to further balance your account. The best time to buy investments is when you have money to invest, so use this period to re-organize your portfolio instead of expanding it.

The best time to sell investments is when you need money for something else. With that being said, if you’ve wanted to invest but have been dragging your feet for whatever reason, you might see a market crash as a buying opportunity. Following a relatively volatile period in the market, the value of your investments may change enough to shift your actual asset allocation away from your target. Although there’s not much of a rush, large movements in the market are a good reminder to give your portfolio a checkup and consider making some moves to bring your portfolio back into balance.

All market crashes aren’t the same, so use the period following one to reorganize and restructure your portfolio. That doesn’t necessarily mean adding more investments, but rather allocating your positions in a different way which correlates to how the market crash impacted your accounts specifically.

Conclusion

Even when it’s all said and done, market crashes provide a compelling opportunity to reorganize your asset allocation and prepare for the next one. You can be like a majority of investors and sink in the fear and panic which runs rampant across the industry, or you can take what you’ve learned and apply it to your own investing process. Part of recovering from a market crash involves preparing for the next one, so take some time to really sit back and evaluate where your own portfolio stands and what you’re seeking to get out of it. What you do after a market crash is just as — if not more — important than what you do right before it strikes again.

What do you usually do to recover from a market crash?
Let us know why in the comments!