Is this a stock market crash?
The stock markets are down yesterday and today? Is it going to continue the next week in RED as well?
Is this the reason for you to panic and sell? If you’re thinking of selling stocks or ETFs, Please don’t. Let me explain to you why.
Market corrections happen all the time.
Always invest for the long term. Never choose to trade for options/make quick money as you’ll get burnt and so will the money you invest.
Just because of profiting from a couple of trades does not mean you need to option trade all time, it is always risky and you might lose all the capital in one single trade.
To create wealth always invest in excellent long term blue-chip stocks with safe growth – such as Apple and Microsoft.
Let’s get started.
Market Crash or Correction?
So all your investments in Green a couple of days back are now down in RED?
You are thinking of selling your investments as the markets might drop further and you’ll end up losing more money. Correct?
Remember, you will only lose money when you sell your investments. If you don’t sell, then the investments are still active and can turn around tomorrow. It’s not over yet.
So, do not sell your investments. The markets, in due course, will correct itself and move back to the glory days. With investing you need lots of patience.
Market Crash Opportunity
Instead during the market correction/crash use the opportunity to buy more of your favourite stocks and ETFs.
Stock markets will always give you an opportunity to buy more during the dips. Keep adding more quantities of your favourite stocks and ETFs during the market downtrend.
Remember, Never sell during the red days and never buy during the market green days! Unless you have to sell the investment.
Anything that you invest in (be it stocks or ETFs), you need to hold it for a minimum of 5 years. The more the merrier in terms of returns. Especially with the evergreen blue chips.
Pandemic and Market Crash
When the COVID-19 pandemic began, the markets crashed pretty bad.
Since then, the markets have recovered pretty nicely. to the point where it was earlier.
Everyone who held their stocks during the crash and added more quantities during the dip has all made handsome returns now. It’s just a matter of time, every time.
Take for example the massive 2008 recession or crash.
Stocks were all down by huge margins, everyone was panicking. People had lost jobs. What was the end result? Did the markets not grow?
This sudden dip in the stock markets over the past 2-3 days is a market correction as well. This too shall pass, do not sell your stocks or ETFs for losses.
Eventually, the markets will rise and perform well. It’s just a matter of time and patience.
The markets might be back up tomorrow and 2 months later. Just keep doing your other regular things and forget looking at the market or the stock ticker, to avoid panic sells. You’ll get used to it eventually.
How To Invest During The Market Downtrend?
Let us quickly take an example here: My Favourite stock Apple.
Apple after the 4-for-1 stock split quickly rose up to $133 per share, returning almost 10% post-split.
But, the P/E ratio was at an all-time high of 40.
Remember, once the split was announced, the stock rose all the way from $370 around to $500 before the August 31st split took place. So that was quite a rally back then.
Usually, the hi-tech stocks trade at a P/E ratio in the late 20s or the early 30s at the max. Apple trading at a P/E of 40 is really high.
Now, post this market correction, Apple will trade at better P/E levels and is long due for corrections.
Apple stock is just shy of $120 now and it hit an all-time low of $110 USD. It is time to add more stocks to your portfolio when the prices are this low and average out the buying costs.
How To Buy During Market Correction?
Let us take an example here.
Say you have $10,000 dollars to invest.
You could have probably invested around $2000 yesterday, $2000 today and wait if the market goes further down to buy more.
Always hold cash in your investment accounts to avoid missing out on these opportunities to buy low.
Once you buy, do not sell until you really have to.
In a matter of a few days or months, Apple will be back trading at $150 levels.
Remember, in 2015 Apple was trading at $95 per stock, and in 2020 it was at $500 before the split. That’s 5X returns in 6 years, plus the dividends.
One advantage you can get is, during the Market Crash in March and April of 2020, you could have added more units of Apple to your portfolios, to increase the percentage gains.
Again, I am just taking the case study of Apple stock here. You can do this for Microsoft, Amazon, FB, Google, or any of your favourite Canadian or US blue-chip stocks.
Other safe ways to Invest and average dollar costs
If you do not like investing in individual stocks. There’s another way you can do this.
Investing in the S&P 500 Index ETFs.
A couple of good Canadian S&P 500 ETFs are – ZSP from BMO (highly volatile and volume) and VFV from Vanguard (a personal favourite)
You have other options, such as XUS, XUU, VCN, XEQT, XGRO, XIC, VEQT.. which are not S&P 500 Index funds but are very popular amongst Canadians and the investing world.
The reason I want to talk about the dollar cost investing is pretty important.
Say for example –
ETF X trades at $9 today (during market high)
Then there’s say day 2 when the market corrects/crashed. The price of the ETF falls to $5.
If you invest in terms of $100, you’ll end up buying $100/$9 units on day 1 and $100/$5 on day 2. This way you are averaging out the overall money pooled into the investments you hold. That’s the dollar-cost averaging. So that you don’t miss out on the highs and lows of the market buys and average out your investments.
Always be consistent in your investments and remember the 50/30/20 savings rule.
Invest before you spend.
But, do not invest everything you have. Enjoy life as well. Balance it out.
Make more money. Spend time with your family and friends.
In this article, I have spoken about the market crash/corrections which are inevitable and need to happen time and again.
Not every day can a stock keep rising up and be in the “Green” zone.
There are days when the market needs to correct itself and when sellers are more than buyers.
During the market corrections or market crash, always make sure to invest more, this way you are buying on dips and selling high. Unfortunately what many of us do is buy high and sell low, making losses.
And remember to hold your investments for the long term.
For example – Before you invest $1 into a Stock or ETF Y, think several times, research and read. Make sure you are comfortable with the investment.
Once you invest, that’s it – forget it for 5 years at least. Do not rebalance your stocks, unless it’s absolutely necessary. Invest in Blue Chip stocks always. Keep it simple and neat always.
Thanks for reading! Let me know your thoughts and comments below.
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Sagar Sridhar is a personal finance blogger from Canada. His genuine passion for personal finance coupled with his unique style of writing is what stands out. Professionally, he is a computer engineer, agile certified and has a master’s degree in Project Management. His writing has been featured or quoted in the leading Canadian publications such as Credit Canada and many other personal finance publications. While he is juggling between his day job and blogging, he is the main author on this blog and has miles to go before making the final pit stop.