How To Survive A Stock Market Downturn?

How To Survive A Stock Market Downturn?

You need to ignore volatility

Yes, stock markets move up and down. This is part and parcel of stock markets. You need to ignore volatility if you want to make money in the stock market. You have invested in good quality stocks (stocks which have good fundamentals). You have a well diversified portfolio. Do you need to worry about day to day movements in the stock market called volatility? All you need to do is stay invested in the stock market for the long term. You will make a profit.

Never time the market, spend time in the market

You want to buy stocks when their price is at the lowest and sell these stocks when their price is at the highest. This is timing the market. Timing the market is very difficult, even the best struggle. The best thing to do in a stock market downturn is to stay invested. Discipline builds wealth.

Reduce your exposure to mid cap and small cap stocks

Your stock portfolio should have at least 60% to 70% invested in large cap stocks. Your portfolio should not have more than 20% to 30% invested in mid cap or small cap stocks. Mid cap stocks have done well over the last few years. This means their proportion in your stock portfolio, might have increased. You need to reduce the proportion of mid cap stocks in your portfolio. However you cannot sell them now, as prices of mid caps are low. It is best to bring in new money (fresh money), to invest in large cap stocks. This will automatically balance your portfolio.