You can see a panic everywhere in the news bulletins as well as social media when a market crashes. News outlets keep on posting negative things about market performance makes it even harder to ignore.
Those who have smart strategies, take advantage of such situations by investing more into the valuable stocks while others keep on selling with huge losses.
But if you follow the following 4 ways to stay calm when stock markets panic, you can end up gaining more wealth in the long run.
#1. Strengthen Your Research
If you are in a panic because a market crash had wiped out your investments, then I can help you come out of this zone.
Think of market crash as a pressed coil spring that will bounce back when pressure is released. This is the best time to strengthen your research. You can learn more
Do deep research and find out companies with strong management and longer visions. This will give you a rational mindset to take educated decisions rather selling off in panic.
Investors stay focused during market crash and find out stocks that have strong fundamentals to rise again after the crash. When the whole world is making losses, they set their path for huge gains.
The only difference is they believe on their research, not what world talking about.
#2. Learn How Emotions Impact Financial Decisions
Behavior economists found in research that people mostly behave unreasonably while making investment decisions.
You can easily push when things are going well but this is not the best planning. People always find it difficult to quit in a positive rally.
Quitting at the right time might miss you out some gains, but it protects you from major losses. Avoiding big losses eventually turns into bigger gains.
Keep in mind that things may go in favor or against you but nothing remains forever.
On the contrary, you afraid to invest when everyone is losing because your emotions create a fear of losing what you have.
But if you think rationally, this is the best time to invest in the stocks to get extra benefit of low stock prices.
Never make any decision on biases. Remember that biases affect your thought process as an investor.
Establish strategies that inform you when to move on. You would be able to remove emotions from the process and improves decision-making.
#3. Analyze History to Understand Market Behavior
If you analyze historical movements of the market, you can see markets react to a piece of news for a short period of time.
Investors who stay through the course get rewards when markets regain momentum.
For example, considering the present COVID-19 crisis, markets are highly volatile these days. But if we look at markets from a historical perspective, this low phase will be over (it may more time to recover, but it will).
Whether its Swine Flu, Ebola, or Zika, each epidemic made the news and adversely affected the global stock markets. But markets regained upward trends eventually each and every time it faced a downfall.
#4. Long-term Financial Plan
Though it’s difficult to control your emotions when the market falls, but you need to handle the volatility of the market with a long term vision.
If you keep long term horizon for your investments and plan accordingly, then the market’s ups and downs don’t bother you.
For example, if you are depositing money into your 401(k) every month or you are investing regularly into a brokerage account, you can easily ignore a temporary drop in asset value because that won’t last for the next 20 years.
Investing regularly irrespective of market behavior uses dollar-cost averaging technique that protects your invested money from price fluctuations.
When you invest a fixed dollar amount into the same investment every month regardless of where prices are. This eliminates the tendency to buy or sell emotionally.
Eventually, you buy more numbers of a stock at a lower price, that results in more gains when the market makes a comeback.
It’s normal to have worries about your money when everything seems bad. But if you anlayze the history, markets have bounced back even from the worst recessions.
So rather making any decision based on your emotions, think rationally, and keep a long term vision.