The Biggest Mistake You Could Make When Stocks Crash!

When the stock market starts to crash, emotions run high. You see your portfolio shrinking, the news hypes up the fear, and it feels like chaos. Most people panic in these situations. They don’t know what to do, and often make rash decisions—like selling everything. But here’s the truth: panic selling is the worst thing you can do.

A Historical Perspective: Markets Always Bounce Back

I love looking at historical stock market data. There’s this one chart that goes back to 1950, showing the market’s performance through countless crises. And guess what? The market has always rebounded. In fact, the events on the chart probably represent less than 1% of all the terrible things that happened during that time. Yet, no matter who was president or what crisis we faced, the market kept going up.

Morgan Housel once said, “Every past crash and bear market looks like an opportunity. Every future one looks like a risk.” It’s so true—what we now see as great buying opportunities once looked like the end of the world.

Peter Lynch famously said that everyone has the power to buy stocks, but not everyone has the stomach for it. That’s especially true when the world feels like it’s falling apart. Remember 2020? The world was literally shutting down, and the market crashed 40% in a month. If that wasn’t terrifying, how about the 2008 financial crisis when we thought the banks would collapse? Or even 9/11, when it felt like the start of something bigger?

And yet, the market recovered.

The Key to Investing in Tough Times: Control Your Emotions

The economy and world GDP always improve over time. That’s why it’s essential to manage your emotions. During a market crash, the best thing you can do is to either buy more stocks or, at the very least, hold onto what you have. Sure, it’s hard to buy when everyone else is running for the exits, but that’s when the best opportunities arise.

If you’re too scared to buy, then just hold on. And if you can, save up so you can buy more when the market is low. Think about it this way: if the market were truly going to zero, would money even matter anymore? No, it wouldn’t. So, if you’re confident the world won’t end, buying more during a crash is your best move.

Markets never go to zero. Eventually, the last seller will sell, and the market will bounce back because institutional money (401ks, IRAs, etc.) stays invested. So, your job isn’t to time the bottom but to buy more as prices get cheaper.

Don’t Let the Media Get to You

The media loves to sensationalize. One day, it’s all doom and gloom; the next, things are looking up. Just look at Japan’s market a few days ago—down 7% one day, up 10% the next. This kind of volatility isn’t rational, so don’t let it scare you.

Instead, focus on being part of a supportive community. In our community, when markets crash, people are excited, saying things like, “Red days are awesome! This is what we’ve been waiting for.” That’s the mindset you need to adopt.

Stock Market Sales: The Only Sale People Avoid

It’s funny how in the world of investing, when stocks go on sale, people run away. But if you’ve invested in strong companies with solid balance sheets, a market downturn is a golden opportunity to buy more.

People always say things like, “That company is past its prime,” or “It’s dead.” But guess what? Most of the time, that’s just noise. Even Blackberry, a company everyone thought was dead, is still around today. If you don’t want to pick individual stocks, that’s fine too. That’s why dollar-cost averaging is so powerful.

The Market’s Ups and Downs

Over time, the market’s value steadily increases, but prices fluctuate wildly. When things are good, everyone’s euphoric. When things are bad, it feels like the world is ending. This happens over and over, and it will keep happening. You’ll experience corrections—10% drops—and bear markets—20% or more drops—from time to time. It’s inevitable.

Your goal is to look at these as buying opportunities. If you can stomach buying during tough times, you can beat the market. And if you just stick to dollar-cost averaging, you’ll at least match it.

The Power of Dollar-Cost Averaging

Let’s take a look at the numbers. From 2001 to 2020, here are the average returns for different asset classes:

• REITs: 9.9%
• Small Cap Equities: 8.7%
• High Yield Bonds: 7.5%
• S&P 500 (with dividends): 7.5%
• The average investor: 2.9%

That’s a huge difference. Why? Because the average investor buys and sells at the wrong times, driven by emotion. That’s why dollar-cost averaging is so important—it removes the emotional element from investing.

If you don’t, you’ll barely beat inflation. But with dollar-cost averaging, you could see your investments grow significantly over time. It’s all about consistently buying, no matter what the market is doing.

How I Plan to Profit from the Next Recession

The next recession is coming, and when it does, I’m going to put the pedal to the metal. I’ll buy more stocks, ignore my emotions, and focus on the long-term opportunity. I’ll look for companies with great balance sheets that have the potential to bounce back after the downturn.

If I’m not sure which individual stocks to buy, I’ll just stick with low-cost ETFs like the S&P 500 (SPY) or QQQ. I’m not above that—it’s a smart way to ensure solid returns over the long run.

Final Thoughts

Investing isn’t just about getting high returns. It’s about staying the course when things get tough. If you can do that, you’ll set yourself up for success. Remember, the market will always go through ups and downs, but over time, it tends to go up.

So, if you’re serious about becoming a better investor, it’s time to start managing your emotions, dollar-cost averaging, and seeing downturns as opportunities. Stick with it, and you’ll be in a much better position when it’s time to retire.

Everything Money is Not an Investment Advisor: Everything Money (including Paul, Mo, and Any other person including, but not limited to, other staff members, guests, personalities, etc.) is not an investment adviser, and it is not registered as such with the U.S. Securities & Exchange Commission or any other state or federal authority under the Investment Advisers Act of 1940 or any other law. The investments and strategies discussed in Everything Money’s YouTube videos and on Everythingmoney.com are not and should not be considered investment advice and may not be suitable for you. They do not take into account your particular investment objectives, financial situation, needs, or personal circumstances and are not intended to be specific to you. Before acting on any investment or strategy discussed, you should always do your own research and make your own independent decision about whether it is suitable for your particular circumstances. You should also consider seeking advice from your own legal, financial, tax, accounting, or investment advisers. Everything Money does not provide such advice.

READ THE FULL DISCLAIMER HERE: https://everythingmoney.com/disclaimer