The most recent stock market plunge has left a lot of people worried about their investments. If you’re new to investing, don’t panic. Instead, do these three things to minimize the damage.
1. Make Sure You Have a Diverse Portfolio
One of the most important things for investors to remember is that picking a diverse range of stocks can help protect them from market crashes. People who lose everything in the stock market usually make the mistake of putting all their money into one sector — typically because it’s done well in the past. This is a risky move. If you own stock in several sectors, then you’re probably alright even if you lost some money in the most recent downturn.
Make sure your portfolio includes a range of companies and sectors. Ideally, you want to have a few risky investments that could give you large returns, balanced by investing in companies and sectors that are historically stable.
2. Meet With Your Financial Planner
Don’t make the mistake of assuming that you’ve lost a lot of money just because the stock market fell. Depending on the stocks you own, you may have only experienced a slight loss and it’s possible your portfolio is still quite strong.
Since analyzing a portfolio can be difficult, especially for those new to investing, you should meet with your financial planner for advice. Your planner may suggest making a few changes that will offer more protection. Then again, you may learn that you’re doing just fine. Don’t have a financial planner? Think like one with this easy guide.
If your portfolio hasn’t suffered, then you might even want to use the recent downturn as an opportunity to purchase stocks at bargain prices. Your financial planner should know enough about your portfolio to help you make that decision.
3. Don’t Take Any Rash Actions
You obviously want to do everything possible to protect your money after a market crash. Fiddling with your investments too much, however, can actually cause more harm than good. This makes it important for you to think carefully before taking action.
Historically, the stock market recovers from a crash within a couple of years. People who invested just before the Great Recession made most of their money back within two years. The Dot-Com Bubble recovery took about five years.
The stock market typically goes through periods of ups and downs. While nobody can predict exactly what will happen, the market has always recovered in the past. Chances are that a market crash will happen again. Always take a long-term approach to investing, and you’ll find that short setbacks won’t affect you — or scare you — nearly as much.