A stock market crash could cause a lot of sleepless nights and anxiety for investors. I'm here to tell you why they don't have to be that scary, and that investing slowly in ASX shares could be the best strategy to psychologically deal with that.
The ASX share market and the global stock market come with an expected level of share price movements. There are different buyers and sellers every day, so it's understandable that share prices move up and down. News events can particularly unsettle, or excite, the market.
We never know when the next crash is going to happen, that's why it's a surprise. It's difficult to accurately predict when the next bear market is going to come along unless your crystal ball is working.
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Don't be fearful for the long-term
There is a regular flow of news over the months and years that may seem scary, such as strong inflation, interest rate changes, economic challenges and downturns, political developments and so on.
However, each time that worrying event passes into history and the share market moves on.
The GFC and COVID-19 were two of the most eventful things that have happened this century, which caused huge stock market crashes, but those specific problems (economic contagion and a healthcare crisis) have been solved.
Look at the price chart below for the iShares S&P 500 ETF (ASX: IVV), which is an exchange-traded fund (ETF) that tracks 500 of the largest businesses in the US. There have been periods of decline, but over the years it has recovered and then reached new heights, though we can't know for certain what's going to happen next.
When I look at that chart, I see the periods of decline as the most attractive time to invest because it's a chance to buy at much cheaper prices during the uncertainty.
I think the great investor Warren Buffett has said some wonderful quotes about the mentality investors should have during stock market crashes:
Be fearful when others are greedy, and greedy when others are fearful.
To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the 'Hallelujah Chorus' in the Buffett household. When hamburgers go up in price, we weep. For most people, it's the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don't like them anymore.
Invest slowly in ASX shares
One way to overcome the fear of a stock market crash could be to steadily but slowly invest the money we have.
Dollar-cost averaging (DCA) can be an effective tool because it can take out the guesswork of trying to time when to invest. It also means that if there is a crash during our investing journey, we will be able to catch some of those cheaper prices.
Knowing that we have a bit of dry powder to be able to take advantage of cheap opportunities can be reassuring.
No one has unlimited money, so it could be a good idea to be strategic with our investing and do it in a way that makes us feel good. A part of investing is about the numbers. But another part is also about the psychological side.
If we can keep our heads, stay invested in good businesses and invest at attractive prices, then we can supercharge our returns.
