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How to make money when share markets are crashing

The share market is dropping heavily week after week. Shares are a lot cheaper now than they were a week ago.

Countries across the world are telling their citizens to limit contact with other people.

How are you supposed to make money when the market is falling so hard?

Well, if your money was allocated to some things before the crash you may be doing a bit better than before. Options and exchange-traded funds (ETFs) that go up when markets go down would have been two ways that people protect the ‘downside’. But we’ve already seen large falls and I’m not really a fan of those ideas, as when markets go up you are losing money.

How are you supposed to make money when the share market is crashing?

The best way to make money over the long-term is to get the cheapest purchase price you can. The most important thing to determine how much money you make is getting a low price, as the return you make for the rest of that holding will be decided by the initial price. It’s times like this and decisions during this period that will decide your long-term portfolio performance

For example, if you bought Commonwealth Bank of Australia (ASX: CBA) shares at a share price of $60 in November 2007 you haven’t seen any capital gains due to the recent falls. However, if you bought during the GFC you may be still sitting on a gain of more than 100% on your CBA shares. There’s all the dividends of course, but it’s nice to make a gain too.

So, what shares would make good buys today during this volatility?

It’s the shares that have great balance sheets, good underlying demand and long-term futures that have very compelling futures and will ride out this period.

What shares fit that description? I think shares like A2 Milk Company Ltd (ASX: A2M), Altium Limited (ASX: ALU), Australian Ethical Investment Limited (ASX: AEF) and Magellan Financial Group Ltd (ASX: MFG) are great candidates for long-term success.

I’d also be very happy to buy shares of diversified investments that are obviously going to keep to going like MFF Capital Investments Ltd (ASX: MFF), iShares S&P 500 ETF (ASX: IVV) and Magellan High Conviction Trust (ASX: MHH).

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Tristan Harrison owns shares of Altium, Australian Ethical Investment Ltd., and Magellan Flagship Fund Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Australian Ethical Investment Ltd. The Motley Fool Australia owns shares of A2 Milk and Altium. The Motley Fool Australia has recommended Australian Ethical Investment Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.