How do I save my funds in a falling market?

[Smith]

Hi there,

I am wondering what I can do to save my investments in a falling market.

[Jeremy]

Hello Smith,

The global panic over coronavirus has triggered the stock market crash, putting most business activities on hold. For investors, such market crashes are scary, considering their impacts on finances. While market falls are unavoidable, you can prepare for them in advance and save funds when they happen.
Start by taking advantage of good businesses with minimal debt to equity ratio, attractive returns on equity, and real profit. Such enterprises are stress-resilient and are more likely to recover even after a massive market fall. So, rather than panic-selling during a crash, you can relax knowing that you will eventually recoup your money. You can even buy more shares during the fall since the shares are at their lowest price, then hold as you wait for recovery. Similarly, when you hold onto your basket of stocks, you avoid unnecessary fees that would dilute your wins.
You can also have a backup plan where you build other cash generators such that even if the market is doing poorly, your other investments are pouring money into your accounts.
Also, find an investment formula that works for you and stick to it no matter the market condition. That way, you don’t make unnecessary emotional sales when the market hits rock bottom.

Finally, you can re-balance your portfolio once the market gets calm. Most likely, your investment portfolio will get imbalanced after a volatile market period. Re-balancing puts your asset allocation back on target.

Edited May 26, 2020 by Jeremy

[Caroline]

Thanks for asking.

With COVID-19 wreaking havoc on all investments, you need to take charge of your funds now more than ever. Start by building your emergency savings to take you through salary cuts, business failures, and job losses. By so doing, you avoid surviving on credit which requires a higher income and interest to repay. In case of pending debts, develop a payment plan to free your cash and raise your loan score for emergencies.
You can also grab the opportunity to purchase stocks valued below their usual price. Because the market may continue sinking, prepare to hold the stocks for long. Dividend stocks, particularly, offer a stable income and compounded gains through reinvestment.
Not to say your portfolio should have stocks alone. Gold, for instance, boasts of low volatility. The good news is you don’t need physical gold. Related assets like sovereign bonds and ETFs offer gold in small denominations while guaranteeing safety.
International equities also cushion you from an economic downturn. Regardless of the financial instrument, ensure the fees are low to maximize profits. Most importantly, avoid high-yield promises. In addition to huge risks, such investments expose you to scams.
 

[Patricia]

Hey Smith,

A market crash is your opportunity to get the stock of your dreams at a lower cost. Though you may not catch the lowest prices, you’re sure the stocks are cheaper than before. Chances are the shares will take long to recover. That’s why you should think long-term. Dividend stocks are also a plus thanks to their reinvestment plans.
Be wary of fees while at it. Although they’re often ignored due to automatic deductions, service charges diminish your gains. In falling markets, especially, you need all the money you can get to survive the dip. Dollar-cost averaging will also come in handy considering the inaccuracy of timing the market. This is where your investment is divided into fixed regular amounts to counter volatility.
Most importantly, resist the urge to offload. Otherwise, you would be going against every investment’s concept of low buys and high sales. Such periods also enable you to gauge your risk endurance. That way, you can correct your portfolio when the market stabilizes.
 

[Hannah Fischer]

Hello Smith, 

Nobody wants to deal with the challenges in the bear market, however, there are certain strategies you can employ in case this happens. 

The most important thing is to stay calm. To be more specific, don’t make sudden moves because you can’t fight the bear market on your own. A good plan to employ during a falling market is placing a large part of your portfolio in money market securities like certificates of deposit, U.S. treasury bills and other instruments that involve high liquidity and short maturities. 

Another strategy you’d want to consider is portfolio diversification. Make sure a part of your portfolio is distributed among stocks, bonds, cash, and other assets.

Also, never invest more than you can afford during the falling market as they can be highly destructive.

Hope that helped.
 

[Adam Hasden]

You can also have a backup plan where you build other cash generators such that even if the market is doing poorly, your other investments are pouring money into your accounts.