Do nothing. Stay the course.
**End of post!** 🤣
Just kidding. My editor won’t let me publish a 5-word post (even though “do nothing” really is the simplest answer to the question), so I’d better add some color commentary…
When the stock market is crashing —> you should do nothing.
I suspect that many of you already know this. But, even though you know it, you might still be thinking in the back of your head, “Maybe this “crash” is different from ones in the past? I’m more experienced now, so maybe I can make some small changes to limit my downside? My portfolio is different from other people’s, so I am allowed to rebalance a little bit… It’s not like I’m selling ALL my stuff, maybe I’ll just sell a few stocks and buy them back at a lower price later?”
It’s not bad to be thinking these thoughts (I think them, too). It’s human nature to try to actively solve problems when we foresee shit hitting the fan.
But, history tells us that the more human intervention your portfolio has, the more money you lose. Even if your adjustments are made with brilliant research and good intentions, they have a higher chance of negatively impacting your overall performance.
Other Thoughts About Stock Market Crashes…
In no particular order, here are some other notes and stories on this subject:
It’s a good time to “play dead”: Fidelity did a 10-year study of all its client accounts from 2003 to 2013. Do you know which investors had the BEST account performance? Dead people! (Or people who had “forgotten” about old accounts.) When accounts were left untouched, they had better growth. So don’t touch yours, mkay!?
When in doubt, LEARN: To fill the time while you are NOT touching your accounts, start reading and learning. I’m not talking about consuming panic news and social media. I’m talking about studying the good ol’ fashion fundamentals of building wealth. Read some of the top personal finance books that have stood the test of time. Or, check out some notable new books:
- Right now I’m reading Trillions by Robin Wigglesworth. It’s about how index funds were created.
- Check out Money Mastermind. This book is written by 30 of my fellow FIRE bloggers and influencers. Different topics, different perspectives, and I even wrote one of the chapters! BTW, if you do want this book, order with discount code “BUDGETS” for 30% off. (This ebook also has a 100% money back guarantee if you don’t like it! 🤫)
We are all in this together: During a market crash you might feel scared, alone, and poor. But the truth is that everyone is in the same boat as you – myself included! One of the reasons I publish my net worth each month is to show you that I practice what I preach. In a market crash, I will lose considerable value in my assets (I’ve lost more than $50k in the last 3 weeks alone). It might get worse, but I won’t be selling any investments. You are NOT alone in a crash.
This has happened before, and it will happen again: The stock market has experienced dozens of crashes and corrections over the decades, and it’s bounced back from every one of them. Since I’m only 37 years old, I will probably experience 5-10 more MAJOR crashes in my lifetime. Maybe even more. But, I will also experience an equal amount of MAJOR bull runs and heroic comebacks. As long as I stay invested, the growth will always be bigger than the crashes. I just need to ride everything out.
You can’t outsmart a crash: Sometimes people think they can use market crashes to their advantage. But, this rarely works out because nobody knows where the “bottom” of a crash actually is. In fact, even if you DID know when the exact market bottom was during every major crash over the past 40 years, you would still come out with less money investing at the bottom vs. investing consistently regardless of highs and lows. Read this easy-to-digest comparison from my buddy Jeremy at Personal Finance Club: How to time the market perfectly.
You won’t lose any real money, **unless you sell**: Even if stock prices plummet, you haven’t technically lost anything as long as you continue to hold your investments. You still own the same number of shares in the same companies, so keep holding them until value rises again (it will).
The “bright side” of sequence of returns risk: A multi-year market crash is one of the biggest risks to people who have just retired. BUT, a multi-year crash can actually be the best thing for people just starting their investment journey! As Big ERN puts it… “Sequence of return risk is a symmetric risk: you can benefit from it or it can seriously harm your investment returns. It impacts both retirees and savers and the risk is exactly a zero-sum game.”
“Please sir, can I have some more?” To add to the point above, a market crash means you can buy stocks at a discount. Downturns are actually a good thing for anyone who is consistently saving and investing (which is the majority of the population!). When you see stocks slipping, you should think like Oliver Twist… “Please sir, can I have some more?”
Learning from past mistakes: Talk to anyone who lived through the 2020 Covid crash, the 2008 Financial crisis, or the 2001 Dotcom crash… You’ll hear 2 main regrets from any investor during those times. Those regrets are 1) I wish I didn’t panic-sell when the market was crashing. And 2) I wish I bought MORE stock during the crash. Learn from other people’s mistakes!
It’s a great time to side hustle!: Speaking of buying more, market crashes are a great time to earn excess money —> and put that money into investments. Side hustles also distract you and keep you busy so you don’t freak out about what the market is doing.
Guided Meditation Video, by JL Collins: A few years back, legendary JL Collins made the following 10-minute video for anyone freaking out about the stock market dropping. Listen to his soothing voice, relax, and follow his wise advice!
Last but not least…
My last piece of advice for what to do when the stock market is crashing… Keep living your awesome life. Hang with your kids, continue your hobbies, keep doing good deeds for people and spending money on the things that you love in this world. Just because the economy is doing weird stuff, it doesn’t mean you need to radically change your behavior. Spend your time on things within your control, not worrying about stuff you can’t.
Happy Friday, y’all! Have an awesome weekend. 😉
Joel is a 35 y/o Aussie living in Los Angeles and the guy behind 5amjoel.com. He loves waking up early, finding ways to be more efficient with time and money, and sharing what he learns with others. Rise Early | Retire Early!