3 reasons not to worry about a stock market crash

Crashes are inevitable and shouldn’t be cause for concern.

A worried man holds his head and look at his computer as the Megaport share price crashes today

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The stock market could very well crash in the coming months. This might sound like bad news if you have a lot of your hard-earned money invested and you're afraid to see your portfolio balance fall. 

But a market crash isn't something to fear. In fact, there are three big reasons you shouldn't be concerned as long as you've got investments you believe in.

1. Market crashes are inevitable

Worrying about a stock market crash is like worrying about a rainstorm. It's not worth it because a crash is as inevitable as a rainy day. Crashes have always been part of the natural economic cycle and if you are prepared, you can easily weather the storm.

But just because you don't need to worry about rain doesn't mean you shouldn't have an umbrella. In this case, your umbrella is a portfolio strong enough to make it through unscathed. Doing this involves smart strategies including investing for the long term and building a portfolio made up of a diverse mix of assets. 

2. Recoveries always follow crashes

A market crash can send your investments plummeting, but just as there have always been crashes, recoveries have always inevitably followed like a rainbow after a storm.

The recovery may take months, or even years. But over time, the market has consistently gone up and never experienced a downturn that didn't eventually reverse itself. 

If you have investments you believe in, just hold them through the crash and wait for the price of your shares to bounce back. Any losses will be temporary and only on paper, and you should end up earning positive returns over the long haul if you've invested wisely.  

3. Crashes present buying opportunities

Lasty, rather than worrying about a market crash, you should view it as an opportunity. Contrary to what your instincts may tell you, it's a good idea to invest more when a crash has occurred. You can buy shares of good companies when they are on sale and benefit from the discount. 

You don't necessarily want to try to time the market to buy at rock-bottom prices since you can't always tell exactly when the crash will end and recovery will begin. So if you consistently buy stock as prices fall, it's inevitable that you'll buy some shares at an opportune time and see more profit because of it. 

What should you do instead of worrying?

If you want to make it through a crash unscathed, there are a few key things you need to do.

First and foremost, don't invest in anything that you wouldn't be prepared to hold through a downturn. If you're trying to make a quick buck with a short-term investment and you don't trust that the company can survive tough economic times, you could suffer permanent losses if you have bad timing and buy before a crash occurs.

Second, aim to have some cash available to invest when a crash happens so you have the opportunity to take advantage of discounts in companies you believe in. 

And third, never panic-sell because doing so just locks in losses. Avoid checking your portfolio obsessively when times are tough and have enough confidence in your investment thesis to sit back and wait for the turnaround to come and your investments to rebound. 

If you do these three things, a market crash shouldn't be cause for any concern. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

two colleagues high five each other as they sit side by side at a long desk in front of their laptop computers in an office environment.
International Stock News

5 surefire investments you’ll thank yourself for later

Investing in skills, knowledge, and relationships is just as important as the investments you make in your portfolio.

Read more »

An attractive woman sits at her computer with her chin resting on her hand as she contemplates the outlook in July for the Macquarie share price
International Stock News

3 things the world’s smartest investors will do in the second half of 2022 to beat the market

Following these steps should make you one of those smart investors, too.

Read more »

Disappointed woman with her head on her hand.
International Stock News

Down 21%, is the stock market ready to recover in the back half of 2022?

The S&P 500 just had its worst first half since 1970. What's next?

Read more »

Red arrow going down symbolising a falling share price.
International Stock News

Why Meta Platforms sank 16.7% in June

The social media giant is warning about tough times ahead for the company.

Read more »

Woman using Pintereset on an iPad.
International Stock News

Pinterest is down 78% — Is it time to buy?

A sudden leadership change has made this question all the more relevant.

Read more »

Man looking amazed holding $50 Australian notes, representing ASX dividends.
International Stock News

3 passive income secrets for dividend investors

You'll make a lot more money if you know how to find and keep dividend payers in your portfolio.

Read more »

woman preparing Moderna vaccine
International Stock News

3 things about Moderna that smart investors know

There's more to Moderna than its COVID-19 vaccines, which investors may not appreciate fully.

Read more »

catapult share price
International Stock News

Which under-the-radar cryptos could pop after this year’s big soccer tournament in Qatar?

Based on what we saw after football's Big Game in February, the upcoming Big Soccer Tournament in Qatar could be…

Read more »