Stock Market Crash!!! What’s Your First Priority?

The Sensex has fallen from 41,952 to 25,981. Almost 40% fall!!!

Are you worried about the stock market levels? The crashes in the stock market? Your investments?

Let’s get things into perspective. Let’s not get confused by the mess around because the mess creates stress. Let’s PRIORITISE.

Table of Contents

1. You and Your family’s health
2. Never think your job is safe
3. Your most important financial goal now
4. Increase your Emergency funds
5. Continue your regular equity investments
6. Additional Equity Investment
7. Make your Portfolio Recover Better & Faster
8. Conclusion

What is to be prioritized before your reaction to the stock market crash? Let’s see.

1. You and Your family’s health

2. Never think your job is safe

Think your job is safe?

With the impact corona has all over the World, never think that your job is safe and that you will be paid regularly. Only to a certain extent, your company may do this, if it goes beyond control, they may not be able to help.

3. Your most important financial goal now

What do you think is the most important financial goal right now?

In case if you have to be quarantined or isolated, does your family know how to manage the show financially.

Do they have access to your bank account, mutual funds, emergency reserve?

How are you going to share the above info to your near and dear ones?
You can try creating a coronavirus financial contingency plan.

How?

1. List all your mediclaim policies,
2. Ensure family coverage and COVID 19 coverage,
3. Prepare for emergencies, and
4. Create an information vault.

To know more read: coronavirus financial contingency plan. For your need, We have created a simple editable pdf file Information Vault – which can be handy to share this info to your family members.

Please download the information vault fill it up, protect it with a password and share it to your family members.

Creating this comprehensive financial information vault should be your most important financial goal now.

Watch the video to discover how to take advantage of this lock-down to take your financial life to the next level?

4. Increase your Emergency funds

Should you increase your Emergency funds?

Yes, many of you would be having 3-6 months of your monthly expense equivalent money as an emergency fund. With this epidemic, you should increase your emergency funds beyond this as we don’t know when this will be back to normal. Hence start increasing your emergency funds rather than withdrawing it and investing in equity, just because the market is down.

5. Continue your regular equity investments

The immediate decisions you would take during this time are

a) Withdrawing to avoid further losses and
b) Timing the market bottom.

“In many ways, the stock market is like the weather in that if you don’t like the current conditions all you have to do is wait a while.” – Low Simpson

Don’t you think staying invested would help you?

Do not be impatient, patience is the key, if you’re having an unavoidable financial need during this crisis, you can use your debt investments, emergency funds, and if much needed use the EMI moratorium facility.

Is it good to continue regular equity investments?

“Rock bottom became the solid foundation on which I rebuilt my life” –J.K.Rowling

Similarly stock market bottom becomes the solid foundations for your equity SIPs. You get more number of units for the same SIP amount now.

Yes, if you are investing through SIP, then continue as usual. If you stop your SIP now, then the whole purpose of SIP will be lost. If you come out of your SIP now, then rupee cost averaging will not happen.

When you most feel like stopping your SIP is when you must keep continuing your SIP. Don’t disturb your SIP for now. If possible and feasible increase your SIP contribution to take advantage of the market crash.

How the stock market has recovered and rewarded investors from the much worse crashes in 200and 2008 is discussed and analysed in detail in the below article:

Attention Investors! Want To Take Unfair Advantage of the CoronaVirus Crash? You Are Just One Step Away

6. Additional Equity Investment

Are you thinking of investing more money in the stock market now?

If you have any additional money (excess or surplus) which you may not need for the next 7 years, then you can invest that long term money in the stock market. This stock market crash will be a good opportunity for you if you have got fresh long-term money. The stock market is available for you at discounted rates.

The best investments are made in the toughest of times.

Investing “when you don’t feel like investing” and “when you know you should invest” is an absolute result-producer.

You need not invest this fresh long-term money in equity at one go. You can invest it in a staggered manner. You can spread your investments through SIP for 3 to 6 months.

7. Make your Portfolio Recover Better & Faster

During this stock market crash, your investments would have made a loss and you would have questions in mind like:

Will there be a further loss?

How will my portfolio recover from this stock market crash?

Will I be able to reach my financial goals?

“When it comes to investing, we want our money to grow with the highest rates of return, and the lowest risk possible. While there are no shortcuts to getting rich, there are smart ways to go about it.” – Phil Town

What are those smart ways where you can both earn the highest returns and have the lowest possible risk?

Imagine if there are ways to do so.

Yes, there are three ways to recover faster from the stock market crash and are discussed here below:

⭐ A portfolio revamp

A portfolio revamp has to be done by moving your funds from poor-performing into better-performing before the stock market recovers. Does it help? Yes, The simple strategy of portfolio optimization works wonder during crises like this. This strategy is explored at length with historical analysis of this particular strategy in 2000 and 2008 in the below article.

How To Make Your Portfolio Recover Better & Faster From the Stock Market Crash?

⭐ A portfolio rebalance

This is a powerful investment strategy to reduce the risk factor.

The most important key to successful investing can be summed up in just two words-asset allocation. -Michael LeBoeuf

After the stock market crash, your asset allocation would have changed. So you are supposed to bring it back to the original asset allocation. This is portfolio rebalance.

Read: How portfolio rebalance is done

⭐ The best choice on SIP

You can either stop, continue, or increase SIP. We did two experiments with three investor categories, each of them who chose one among the following options. One chose to stop, another to continue and another to increase SIP (all during the market fall).

Can you guess who earned the highest portfolio value?

In both the experiments, the one who increased his SIP during the market fall, earned the highest portfolio value.

What happens?

1) If you stop SIP, you will incur a loss or recover less.
2) If you continue SIP, you will gain better than if you stop them.
3) If you increase SIP, you will gain much better than if you stop or continue it.

Hence increasing your SIP will help you recover faster and better from the stock market crash.

For more, read: How to play smart with your SIP.

Now as you know what to be done for a speedy recovery, do them before the market recovers. All successful investors would do these before the market recovers and would recover their portfolio when the market recovers.

Will you also not do so?

These will definitely help your portfolio for a speedy recovery from the market crash and also help you get on your track to reach your financial goals.

8. Conclusion

Nothing work unless you do the work. So start with looking after your health and your family’s health. Never think your job is safe. Continue your equity regular investments as usual. Your main financial planning goal should be on creating information valut, emergency funds and liquidity. Hence increase them to a comfortable level. Lastly, if you have any additional long-term money you can invest them in a staggered way in the stock market, rather than investing as a lump sum.