How to Prepare for the Next Stock Market Fall

On the 24th of February 2022, many Indian citizens woke up to the sight of Ukrainian cities in blazes. These are sombre and tense times with the ongoing war of Russia on Ukraine. While the consequences of this war will ripple through the globe, it certainly made an impact in the fiscal realm. Such devastating periods can throw an already troubled stock market into a frenzy.  

Many people rushed to see the effect of the ensuing war on their stock-based investments. Unfortunately, Sensex crashed over 1,900 points with Nifty below 16,500 points. Amid the slowly easy COVID-19 and OMICRON tensions, this has brought back major concerns for investors. 

Remember: Stock Markets Are Always Unpredictable

The stock market is already volatile, and no one can ever really tell where it’s headed. While we see this crash in the market, you will eventually witness a swift rise once more. Though, this doesn’t mean that you don’t need to prepare for a sudden downturn in the market. 

While all market crashes aren’t necessarily caused by wars breaking out, there are multiple reasons behind its occasional fall. 

1. An overheated economy 
2. The rise of inflation 
3. The economy heading in an uncertain directions 
4. A peak in market speculations

During these times, you experience what’s called a “bear market”, where the market falls by 10%, with a total decline of 20% or more. Essentially, when such situations arise, we encounter a period of recession. With the declining prices of stocks, companies could potentially end up in bankruptcy and this, in turn, will lead to a string of layoffs. 

Also Read: What are Blue-Chip Funds?

Preemptive Measures for Stock Market Crashes

Instead of blindly manoeuvring your way through a stock market fall, take the following measures to safeguard your investments. Your proactive steps in these events will prevent you from incurring any further losses. 

Choose Your Investments Wisely

When it comes to investing your money, especially in the stock market, you need to ditch herd mentalities. While word of mouth through friends and family may suggest certain companies’ stocks to invest in, always do your due diligence. Evaluate the overall performance of the company and its history with crashes and recovery. 

Gauge Your Risk Tolerance 

Experts have always repeatedly cautioned new investors that they must brace for a 20-30% market decline. Entering these spheres with a high-risk appetite means exposing yourself to all kinds of potential losses. Ensure you analyse your risk endurance and ability to navigate through such periods, without selling your stocks at a loss out of panic. 

Create an Emergency Fund

You must create a backup fund for possible downturns in the market. Many investors tend to liquidate their stocks during these times, incurring major losses. Make sure your emergency fund consists of at least 3 to 6 months worth of savings. This should be able to cover day-to-day expenses, bills, etc. 

Make a Diverse Portfolio

As devastating as the effects of market crashes are, not all sectors are as deeply affected by them. While you may have a favourite sector, pooling all your investments in its stocks, leaves you vulnerable to unforeseen losses. By cleverly investing in stocks across a diverse range of sectors, you can avoid the adverse effects of market crashes. 

Build a Stock Wish-List 

With the declining prices of stocks, this just might be your chance to grab some of those expensive stocks you had been eyeing. Creating this list will eliminate last-minute decisions, helping you purchase those stocks immediately before the prices shoot back up. 

So, going forward, grasp the depth of your investment decisions before proceeding with them. After all, taking these proactive measures will save you from a great deal of grief and financial losses.