The S&P/ASX 200 Index (ASX: XJO) has been on a rollercoaster ride to start the year and we've already seen one ASX share market crash.
We're less than halfway into 2020 and we've already seen a bear market, pandemic, oil price war and record government stimulus.
But despite some obvious headwinds, the ASX 200 has bounced back strongly in April and May. Investors are starting to get spooked as ASX shares climb back to where they were in mid-February.
So, if we were to see another ASX share market crash, what's the best way to deal with it?
Don't panic in an ASX share market crash
If a crash has already occurred, it's too late to cash out. Selling out during a downturn can chrystallise your losses and reduce any potential upside.
That means it's best to keep calm and carry on if the market has a downturn. This way you can keep your eye on the long-term prize and stay cool under pressure.
Trust in diversification
There's a reason why diversification is key. While it can be tempting to load up on a growth share like Altium Limited (ASX: ALU) and hope for the best, portfolio construction is critical.
If we see another ASX share market crash in 2020, it's best to have a portfolio ready to spread the risk. That means having enough investments across individual companies and sectors to weather the storm.
Don't overinvest in ASX shares
An ASX share market crash creates buying opportunities for savvy investors. While it's tempting to buy, buy, buy, it is a short-sighted mindset.
Make sure you only invest what you can afford to lose. No matter how good an ASX share price is, you don't want to overinvest and commit too much capital.
The worst thing you can do as a long-term investor is be forced to sell early to cover short-term expenses.
