Is this a stock market crash?
Stock markets are down yesterday and today? Will it continue next week in RED as well?
Is this why you are panicking and selling? If you are considering selling stocks or ETFs, Please don’t do it. Let me explain why.
Market corrections happen all the time.
Always invest for the long term. Never choose to trade options/make money quickly because you will burn yourself and so will the money you invest.
Just because you profit from a few trades does not mean you should trade options all the time, it is always risky and you risk losing all the capital in a single trade.
To build wealth, always invest in great long-term blue-chip stocks with safe growth, like Apple and Microsoft.
Let’s get started.
Crash or market correction?
So all your investments in green a few days ago are now down in RED?
You are considering selling your investments because the markets could fall further and you will end up losing even more money. Correct?
Remember, you will only lose money when you sell your investments. If you don’t sell, the investments are still active and can recover tomorrow. It’s not over yet.
So, don’t sell your investments. The markets, when the time is right, will correct themselves and return to their glory days. Investing requires a lot of patience.
Market Crash Opportunity
Instead, during the market correction/crash, take advantage of the opportunity to buy more of your favorite stocks and ETFs.
The stock markets will always give you the opportunity to buy more during dips. Continue adding more quantities of your favorite stocks and ETFs during the market downtrend.
Remember: never sell during red days and never buy during green market days! Unless you need to sell the investment.
Anything you invest in (whether stocks or ETFs), you should hold for at least 5 years. The more, the merrier in terms of returns. Especially with the evergreen blue chips.
Pandemic and stock market crash
When the COVID-19 pandemic began, markets crashed.
Since then, the markets have recovered quite well. to the point where it was earlier.
Everyone who held on to their stocks during the crash and added more during the decline have all made nice returns now. It’s just a matter of time, every time.
Take for example the massive recession or crash of 2008.
The stocks all fell by huge margins, everyone was panicking. People had lost their jobs. What was the end result? Haven’t the markets developed?
This sudden decline in stock markets over the last 2-3 days is also a market correction. This too shall pass, don’t sell your stocks or ETFs at a loss.
Eventually, the markets will rise and perform well. It’s just a matter of time and patience.
The markets could be back tomorrow and 2 months later. Just continue doing your other usual activities and forget about watching the market or the ticker, to avoid panic selling. You will eventually get used to it.
How to invest during the market downtrend?
Let’s quickly take an example here: My favorite Apple title.
Apple, after the 4-for-1 stock split, quickly rose to $133 per share, a nearly 10% return after the split.
But the P/E ratio was at a record high of 40.
Remember, once the split was announced, the stock went from around $370 to $500 before the August 31 split. So it was quite a rally at the time.
Usually, high-tech stocks trade at a P/E ratio in the late 20s or early 30s at their peak. Apple trading at a P/E of 40 is really high.
Now, after this market correction, Apple will be trading at better P/E levels and has been waiting for corrections for a long time.
Apple stock now costs just under $120 and has hit an all-time low of US$110. It’s time to add more stocks to your portfolio when prices are this low and average purchasing costs.
How to buy during market correction?
Let’s take an example here.
Let’s say you have $10,000 to invest.
You probably could have invested about $2,000 yesterday, $2,000 today and waited for the market to fall further to buy more.
Always keep cash in your investment accounts to avoid missing out on these cheap buying opportunities.
Once you buy, don’t sell until you really need it.
In a few days or months, Apple will return to the $150 level.
Remember that in 2015 Apple was trading at $95 per share, and in 2020 it was trading at $500 before the split. That’s 5X returns in 6 years, plus dividends.
One of the benefits you can get is that during the stock market crash of March and April 2020, you could have added more Apple units to your portfolios, to increase the winning percentage.
Again, I’m simply taking the case study of Apple stock here. You can do this for Microsoft, Amazon, FB, Google or any of your favorite Canadian or US blue chip stocks.
Other Safe Ways to Invest and Average Dollar Costs
If you don’t like investing in individual stocks. There is another way to do this.
Invest in S&P 500 Index ETFs.
Some good Canadian S&P 500 ETFs are BMO’s ZSP (highly volatile and high volume) and Vanguard’s VFV (a personal favorite).
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 among Canadians and the investing world.
The reason why I want to talk about the expensive investment is quite important.
Say for example –
ETF X is trading at $9 today (market high)
Then there is, say, the second day where the market corrects/collapses. ETF price falls to $5.
If you invest in terms of $100, you will end up buying $100/$9 shares on day 1 and $100/$5 shares on day 2. This way, you average the overall money pooled into the investments you hold. This is cost spreading. So as not to miss the ups and downs of market purchases and average your investments.
Always be consistent with your investments and remember the 50/30/20 savings rule.
Invest before you spend.
But don’t invest everything you have. Also enjoy life. Balance it.
Earn more money. Spend time with family and friends.
Conclusion
In this article I talked about market crashes/corrections that are inevitable and bound to happen again and again.
A stock cannot continue to rise every day and end up in the “green” zone.
There are days when the market needs to correct and there are more sellers than buyers.
During market corrections or crashes, always make sure to invest more, this way you buy on dips and sell at a high price. Unfortunately, many of us buy high and sell low, resulting in losses.
And don’t forget to hold on to your investments for the long term.
For example – Before investing $1 in a Y stock or ETF, think several times, research and read. Make sure you are comfortable with the investment.
Once you invest, that’s it – forget about it for at least 5 years. Do not rebalance your inventory unless absolutely necessary. Always invest in Blue Chip stocks. Always keep it simple and neat.
Thanks for reading! Let me know your thoughts and comments below.
