Intro
The stock market has fallen around 10 this year and it always feels bad to see your money disappear from the account but before we start selling invite panic it’s time to think about what this means and why it’s happening I know that many of you have just started with stocks.
After two great years, we’ve gotten pretty used to that the stock market should always go straight up by twenty-thirty percent per year but this is far from the norm and I think you know that too the most common condition for the stock market is to rise.
But not in a straight line a small decline of around 10 percent happens most years even though the stock market later ends up on plus for the year so there is no need to panic yet and quite regularly there will be slightly larger crashes of 20 or more historically.
They’ve often come around every seventh year these are some of the rules of the game that you have to get used to if you want to invest in the stock market maybe we’re in the beginning of a crash now maybe not.
Part 2
So lately many have been shouting that the worst stock market crash the mother of all crashes is here as soon as the stock market has gone down by a mere percentage or two we live in a time right now when everyone is competing for our clicks and our attention.
Whether is the newspapers or YouTubers you get the clicks by presenting horror headlines in reality of course this is not true no one knows no one knows when the crash will come not even Michael Barry, not Cathy Woods, not Ray Dalio, and not even me.
I know it must come as a shock to you but try to breathe since no one can predict the future one thing is still certain the crash will come sometime so it’s best to think through now what you would do when it comes So here are some of the rules that I invest by and that I think works well in occasions like this.
Don’t panic sell.
Sell okay you’ve heard it before but it’s so hard to follow when we’re in the middle of reality don’t sell in a panic sell if you have a strategy that tells you that it’s time to sell right now but don’t sell because you think that you will be able to buy again at the bottom it’s very difficult to hit a bottom and most people end up losing money.
Instead of gaining something by trying to time the market it’s not obvious when we reach the bottom i don’t know if you were into stocks during the crash of 2020 and if you remember what was what it was like back then.
I had some money and I was thinking I should buy some more when we got to the bottom and then the bottom came and it started to rise again but not everyone agreed that this was the bottom that we saw many talked about a bull trap or a dead cat bounce and that we would continue down even further.
Part 2
After a short period where the bottom can only be identified afterward. And of course, I didn’t manage to hit the bottom either so don’t sell. Because you think that you will have time to buy back at lower levels. When it turns around it is super easy to sit and look at historical stock charts. And say what you would have done and think that you would also have succeeded to do it.
But in reality, you have no idea and no one else has it either it can turn around now we may have already seen the bottom but it may continue down as well therefore it has been proven best to just stay invested all the time and not try to time the market.
This is where we small investors lose the most money trying to time the market many of the stock market’s best days also tend to come close to the worst days so selling right after a big dip might mean losing out on a big rise shortly afterward.
Think about risk.
Does it still feels hard to see money disappear then I think you should think about it. Whether you are investing with the right risk level. Of course, it’s always a little bit hard to see everything in red and lots of money disappearing.
And when you have slightly larger sums in your account several months’ worth of salary or more can disappear within just one bad day. I’m the first to admit that it’s not always easy mentally to just take this in. But what I mean is that it shouldn’t feel so hard that it takes over your life that you can’t sleep due to anxiety or something like that.
For example, what you have invested in the stock market today should not be money that you need to manage your everyday life. Right now to be able to pay your bills food etc this should be money that you don’t intend to use for at least 10 years.
Is this not true for you do you feel very worried and have invested money that you need in a short? While then you probably have taken on a too-high risk. So what should you do then think about how much you could handle seeing lost in a crash.
Part 2
During historical crashes, the stock market has usually gone down between 20 and 50. But as we all know historical returns are not a guarantee of future returns. So if things go bad it could go down even more and a decent number for the entire stock market. Of course, each stock could go down more or less and often.
We see certain sectors hit extra hard depending on what caused the crash in the first place in any case. I think it should be comfortable with at least losing 50 in the short term. Otherwise, think about your risk level and don’t invest all your money in the stock market. So what else should you do then?
There are no really good alternatives right now. At least I don’t think so traditionally you would have put some in bonds instead but interest rates are so very low right now. So it doesn’t give anything and once the interest rate starts to go up the bonds will go down at least initially it may seem a bit backward.
But say that you have invested in a loan that’s what the bonds are right different loans. So say that even invested in a loan with a one percent interest rate and then the interest rate goes up to two percent the interest rate of the loan. That you already have is set and will not go up but new loans are taken out all the time.
Part 3
So all of a sudden there are loans with two percent interest that you can also invest in. So everyone will want to invest in the loan with a higher interest rate right because it gives a higher return and your loan with only a one percent interest rate will therefore be worth less.
And no one will be interested in buying it so a bond fund naturally contains several different loans and depending on. Whether it’s a fund with loans with shorter maturities or with longer maturities. It will take different lengths of time for the fund to replace and get rid of the loans with the lower interest rates which are not so attractive anymore.
So then we have gold which traditionally has been a good per server of value i’m not a big fan of gold. As I don’t like assets that are useless a share is of course a part of a company at least in the long run. It is thought that the company will make money and generate profit for its owners.
Part 4
But gold almost only has value because we humans like glittering things gold is quite useless otherwise. And it’s not used as much as other methods in the industry. For example, as long as everyone agrees that it has a certain value it still has.
So I would not buy crypto either as an alternative. If you think that it’s difficult to see the stock market go up and down. Because in a self-code code that has a much higher risk than stocks. And it’s much more volatile and also bitcoin.
For example, has plunged along with the stock market even though they’re not super correlated yeah in any case. There’s no great intensity right now so maybe putting some of your money just in a bank account with some interest rate. At least can be just as good right now to lower your risk.
Buy More On The Way Down
This is a good opportunity instead of something bad try to turn something into something positive no 15 years since 1926 have given a negative result and hardly any 10 years either. So if you had put your money in the stock market at any time after 1926.
If you only waited for 15 years you would always have gotten a positive result. So you would have had more money than what you would have put in. This is why it said that you should have a long-term savings horizon.
If you want to put your money in the stock market. And if you invest long term it’s a good thing that the stock market goes down. Because now you get the chance to buy shares cheaper take the opportunity to buy more on the way down.
Even if it feels hard to see the money your deposit disappears immediately. Because if you thought that a share that cost 100 a month ago was a good buy. It must be an even better buy at 90 provided that nothing else has changed for the company. And many individual stocks have fallen more than the stock market as a whole.
So there could be some good buys right now out there and don’t pause the monthly deficits. If you have such ones it is a very good strategy to invest regularly. And practice dollar cost averaging.
If you deposit the same amount, maybe $100, every month. It will automatically be the case that you will buy fewer shares. When the stock market is higher and more when the stock market is lower. And this will benefit you in the end.
Do not log in.
All the time check the value of your account. This is a rule that I live by it simply isn’t fun to see red numbers and thousand ten thousand hundred thousand or millions disappear from your account in a crash. Thinking how much you could have done with this money.
Instead, if you’ve only been smart enough to take them out beforehand. But now they’re gone I think it helps a lot not to see the mystery. As long as you have followed my advice and only invested. What you can afford to lose you will still manage to look around you.
And see that you’re still quite well off you have a home you have food you have your health and everything else that makes your life fun to live don’t focus so much on your investments right now it will soon pass and they will go up again.
To be honest I don’t know when I lost logged into my account. I just reached a new milestone and now I’ve probably gone under that again.
So I have no big desire actually to see it right now. It also helps that my bank app is incredibly slow on my phone. We’re working with an iPhone 6 here, so maybe that’s why. So this is a bonus tip. Switch to another phone. And you will not want to log in all the time either.
Go over your strategy.
This is a good time to think about this if it feels difficult it may also be a good time to go over your strategy. I think a good strategy should hold in all situations and it should make you want to invest regularly. Whatever happens also makes sure that you have a good diversification between different sectors and industries.
Even if the stock market in general declines certain sectors are often hit harder we had the i.t crash. For example at the turn of the millennium when technology stocks went down more. Whereas the financial crisis in 2008 and in 2020 airlines and hotels and such were hit harder.
Therefore make sure to not only invest in tech stocks. For example, try to have an even distribution between several industries and several stocks. Of course, something that might be interesting to look at right now is value stocks which are stocks that are valued value stocks.
Historically have outperformed growth stocks the growth company’s values are based more on future earnings. And now that the economic growth appears to be slowing down a bit inflation and interest rates are rising. Their values have been written down in the last decade.
Part 2
However, growth stocks, especially in the u.s stock market have outperformed value stocks. But that might be changing right now. There are many growth stocks in the tech sector. For example, they have had very high valuations for some time now.
Growth companies are often dependent on financing in the form of loans, and with higher interest rates. These loans will cost more for companies, and the harder forms they take out at the same time. A lower growth rate of the economy means that it will not grow as fast as previously sought. So then the prices for these stocks go down.
And perhaps most importantly, what do I think a random person on the internet who for some reason thought? It was a good idea to start a YouTube channel? the stock market is always upset about something. Right now it’s higher inflation and on rest around Ukraine and Russia which are the most pressing issues.
Part 3
If the inflation does not fall back on central banks around the world will need to raise interest rates to calm the economy. Because what we don’t want is a rampant rampant inflation one way to control inflation is to raise interest rates effectively. This means that money will cost more to spend and spending will.
Therefore back companies will find it more difficult and expensive to take out loans to finance their operations. And we the general public with loans will have less money in our wallets to spend because more of our income will go towards interest rate payments. So we will not be able to spend as much on products from companies.
Thus the economy will slow down for many companies higher interest rates will. Therefore means lower profits but of course.
Part 4
There are sectors such as the financial sector that may also benefit from higher interest rates. So what happens to the stock prices is also very much about what people expect to happen and what happens in the end.
Whether it’s in line with expectations and as for Russia and Ukraine. I hope we will not see more so what do you think is the stock market going down further or did we hit the bottom Share your thoughts in the comments below. Keep watching this video if you want to know more about what not to do with your stocks. I’ll see you again next time.
