Recession and boom are two sides of coins. If there is a booming period, definitely the recession will come and vice versa. But the most important thing is that how you tackle stock market downturn without panicking and loosing your hard earned money. If you know market and how it has reacted at the time of crisis, then you will be able to easily sail your boat from the storm. The only key to make money in the stock market is by maintaining patience.
Warren Buffett has rightly said that “The stock market is a device for transferring money from impatient to patient.” When things are turns out bad in the stock market, people think that world is going to end. However the data tells otherwise. So, today in this article I am going to share with you 7 tips that clever investors follow at the time of stock market downturn.
Tips To Tackle Stock Market Downturn
1. Avoid timing the market
If there is downturn in market, don’t exit the market now. If you are thinking that this is the best time to pull off your money, then let me tell you no one can time the market perfectly. The best advice at the time of downturn is to stay invested. People try to time the market saying that this is smart thing to do. But let me tell you it is the discipline and patience that results in wealth creation not correctly timing the market.
2. Reduce the exposure of investment in mid and small cap funds
In your portfolio, near about 70 percent of the money should be invested in large cap funds. 20 – 30 percent of your investment should be in small and mid cap funds. So, if you are introducing fresh capital in the stock market, try to invest more in large cap funds as they are less volatile in comparison to mid and small cap funds.
3. Invest across Investment Style
Do not restrict yourself to single investment style. For example, if you are investing in only in growth funds, have some exposure to value and dividend yield funds. If you invest 20 to 25 percent will help you protect your investments during a downturn.
4. Ignore Volatility
The basic lesson that investors needs to learn to ignore volatility. If you know that you are having a diversifiable portfolio and has a long investment perspective. Then best way to tackle stock market downturn.
5. Continue Your Systematic Investment plan
If you have taken SIP and market is on its downturn, then it is a foolish thing to withdraw the SIP’s. The reason behind this, SIP of one to two year never bring positive returns. For positive returns, you need to wait for 10 to 15 years. So, here you need lots of patience.
6. Restructure Portfolios
At the time of stock market downturn, the proportion of equities decline in our portfolios. This is the time, when you require to deploy more equities to your portfolios. Keep it going for next three to five months. At this time, do not borrow to invest.
7. Diversify International
Diversifying your investments internationally reduces the country risk. Invest in globally diversified international funds. In addition to this, you can also invest in US or UK domiciled multinational companies.