Markets across the globe crashed dramatically in march 2020. That market crash created a sense of fear in the investors (especially newcomers).

If you are worried about what would happen next this market crash happened in march 2020. If you are in a panic because your best investments are reduced to half of the buying price.

I would have to share 4 lessons with you that I learned from past stock market crashes and that would help you how to behave when markets are turning red.

#1. Focus on the Long-term

You can see everyone giving this advice everywhere. This advice has been so common but this is still the best strategy to follow during market crashes.

I learned this hard truth in the 2008 crash when I lost my investments by taking some wrong steps in panic.

If you go through history, markets crashed but bounce back again every time. Markets not only recovers, they always reach a new high.

So you can consider this bad phase as a base of a much better phase than the past.

In this crucial time, it is important to keep a long term vision. Keeping a long term vision help you not only recover the losses but get some extra gains. You can invest in stocks with strong fundamentals by doing your own research rather than acting on market news.

#2. Multiple Income Streams

We are at the edge of a recession.  If you are in a business, you might already be facing a decline in income as businesses are shut due to lockdown in the country or you might be worried about a layoff or price cut if you are in a job.

The first thing to do is keeping an adequate emergency fund. But this will work for a couple of months only. But it will give you some time to develop new income possibilities.

Second thing is to start a side hustle now. This is the best time for that. You would not only be able to maintain your cash flow, if you one mainstream income disrupts, but you would also be able to expand it once the economic crisis is over.

If you are in a offline business, you can think of starting an online business, that would help you reach market beyond the geographical boundaries. Get some ideas, finalize which you feel more connected to and create on a plan for new business .

Some ideas are that you can start coaching online something you have exerptise, you can start a blog or youtube channel for passive income. If you are in the manufacturing domain, you can think of creating an eCommerce store or joining Amazon as a seller.

#3. Strengthen Your Research

Another important lesson that I learned from past market crash is that your research should be strong. Because only with deep research, you can find out companies with wider moat, strong management and longer visions.

You would be able to take educated decisions rather than selling off in a panic.

Smart investors learn from mistakes, strengthen their research, and able to find out stocks that let them go through the course. When the whole world is making losses, they are all set for the bigger gains.

#4. Rupee Cost Averaging

This market crash might have wiped out your investments but you can’t do anything with that. What you can do is wait for the market decline to slow down.

You can buildup some cash reserves to buy stocks at cheaper prices. No one can guess how low a market may go but you can understand that stocks are already offering you buying opportunities.

Take the benefit of Rupee Cost Averaging to reduce the losses during the market crash. Rupee cost averaging is a strategy to invest a fixed amount in the same shares every month irrespective of market behavior.

This ensures that you buy more shares when prices are low and less shares when prices are high to reduce sudden loss. SIP investment is an example of using rupee cost averaging technique.

Let me explain with an example if you have 1,20,000 rupees as cash reserve that you are planning to invest in stocks. Then rather investing all the money at once, you would be investing Rs. 10,000 per month for one year.

This will protect you from losing all your money if the market crashes again, in fact, you will earn more gains in the long run.

#5. Rebalance Your Portfolio

You can find it difficult to invest more money into your previously bought shares when the market is declining. Even it took me time to understand the importance of rebalancing the portfolio when the market is behaving low.

You might have built up your portfolio when the share prices were up, and now they might be down by 40-45%. You have a good opportunity to buy at almost half prices. This will benefit you when the market recovers.

You can use the benefit of Rupee cost averaging that I discussed in the previous point. You can fully rebalance your portfolio by buying the same stocks at discounted prices. You can reap the biggest profits when the market begins to recover.

Conclusion

It’s easy to give up in a panic and cursing your destiny. But a smarter way is to keep your nerves calm and prepare yourself advance for the worst.

You should keep long term focus on your investments by understanding the economic volatility and current market behavior.

If you come up with a concrete plan to overcome this crash and upcoming recession, you would likely to be build up a new foundation for a secure future.