5 Things To Do When Stock Market Crashes (2024)

FAQs

What to do when the stock market crashes? ›

Another way to make money on a crisis is to bet that one will happen. Short-selling stocks or short equity index futures is one way to profit from a bear market. A short seller borrows shares they don't already own to sell them and, hopefully, repurchase them at a lower price.

Cash equivalents include short-term, highly liquid assets with minimal risk, such as Treasury bills, money market funds and certificates of deposit. Money market funds and high-yield savings are also places to salt away cash in a downturn.

Sometimes, however, the economy turns or an asset bubble pops—in which case, markets crash. Investors who experience a crash can lose money if they sell their positions, instead of waiting it out for a rise. Those who have purchased stock on margin may be forced to liquidate at a loss due to margin calls.

The bounce-back from the 2008 crash took five and a half years, but an additional half year to regain your purchasing power.

While selling stocks during a market downturn might make you feel better temporarily, doing so reactively because stocks are tumbling isn't a good long-term investment strategy. Volatility is a normal part of investing in the stock market, so occasional market selloffs should be expected.

The company does a whole lot of different things for its broad base of customers. Consequently, even if there's a recession coming, people won't stop suddenly shopping at Walmart – and that's why Walmart stock is such a great defensive pick in 2024.

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Remember that just because your investments are down doesn't mean they're bad investments. In a stock market crash, most stocks lose value. If you believe a stock is a good long-term investment, then you should hang on to it and continue investing in it.

Cash. Cash is an important asset when it comes to a recession. After all, if you do end up in a situation where you need to pull from your assets, it helps to have a dedicated emergency fund to fall back on, especially if you experience a layoff.

Luckily, there are some stocks that are more resilient to the negative effects of a downturn. Three stocks that outperformed the S&P 500 during the 2007-09 Great Recession were Gilead Sciences (GILD 0.80%), McDonald's (MCD 0.17%), and Walmart (WMT 0.13%).

Companies in the business of providing tools and materials for home improvement, maintenance, and repair projects are likely to see stable or even increasing demand during a recession. So do many appliance repair service people. New home builders, though, do not get in on the action.

Key Takeaways. While holding or moving to cash might feel good mentally and help avoid short-term stock market volatility, it is unlikely to be wise over the long term. Once you cash out a stock that's dropped in price, you move from a paper loss to an actual loss.

Winning stocks increase in price for a reason, and they also tend to keep winning. Don't sell a stock just because its price decreased. Every investor wants to buy low and sell high. Selling a stock just because its price fell is literally doing the exact opposite.

Stock market losses erode wealth in both personal and retirement portfolios. A consumer who sees his portfolio drop in value is likely to spend less.