Key Dos and Don'ts for Investors After a Market Crash

Image Source: pexels

You might feel worried after seeing your investments drop. That’s normal—lots of people ask, “why did the market crash today?” Markets often bounce back, with the S&P 500 rising about 74% of the time even after tough periods.

Take a breath and focus on what you can control.
Here are a few smart steps you can take right now:

1. Keep a long-term view and don’t rush to sell.
2. Check your emergency fund so you don’t have to sell at a loss.
3. Review your spending and invest only what you can afford.

Key Takeaways

• Stay calm and keep a long-term view to avoid rushing into bad decisions after a market crash.
• Check your emergency fund and finances to ensure you can cover expenses without selling investments at a loss.
• Keep investing regularly and consider rebalancing and diversifying your portfolio to manage risk and boost recovery.
• Avoid panic selling, trying to time the market, borrowing to invest, and making drastic changes to your plan.
• Set realistic goals, learn from your experience, and seek advice to stay on track and build better habits.

First Steps After a Crash

Image Source: unsplash

Assess Your Finances

Start by taking a close look at your current financial situation. You want to know exactly where you stand before you make any decisions. Check your bank accounts, investment balances, and any debts you have. After the 2007–2008 financial crisis, many people faced long-term losses and job cuts because they did not review their finances quickly. If you act early, you can avoid bigger problems later.

Tip: Make a simple list of your assets and debts. This helps you see the big picture and spot any weak areas.

Emergency Fund Check

Your emergency fund is your safety net. Make sure you have enough cash set aside to cover at least three to six months of living expenses. This fund keeps you from having to sell investments at a loss if you need money fast. The IMF has found that risks go up right after a market crash, so having cash on hand is even more important. If you do not have an emergency fund, start building one now. Even small steps help.

• Ask yourself: Can I pay my bills if my income drops?
• If not, focus on saving before you invest more.

Understand Liquidity Needs

Liquidity means how quickly you can turn your assets into cash. During a market downturn, liquidity can dry up fast. In past crashes, investors who could not access cash had to sell at bad prices. Studies show that when liquidity drops, markets become unstable and prices swing more.

Note: If you think you might need money soon, keep some assets in cash or in accounts you can access quickly.

You want to avoid forced selling. Plan your post-pandemic investment planning with liquidity in mind. This way, you can invest with confidence and avoid panic moves. If you know your needs, you can stay calm and stick to your plan.

Dos for Investors

Stay Invested

You might feel the urge to pull your money out of the market after a big drop. That’s a common reaction, but staying invested often works out better in the long run. When you keep your money in the market, you give your investments a chance to recover as prices bounce back.

• Markets reflect all available information, so trying to outsmart them rarely works.
• Studies show that most people who stick with a low-cost, passive approach see better results than those who jump in and out.

Remember: Patience pays off. Over time, investments usually recover and grow, even after a market downturn.

Here are some facts to keep in mind:

• Only about 23% of active managers beat passive funds over long periods.
• Long-term, buy-and-hold strategies have outperformed active trading, especially in large markets like the U.S. and China.
• Real returns, adjusted for inflation, show that staying invested helps your money grow steadily.

Rebalance Portfolio

After a crash, your portfolio might look very different from what you planned. Some investments may have dropped more than others. Rebalancing means you adjust your mix of stocks, bonds, and other assets to get back to your target.
Studies by Morgan Stanley and Vanguard found that rebalancing can help you earn more and lower your risk. When you rebalance, you often buy more of the investments that have dropped in price, which can boost your returns when the market recovers.

Tip: Set a regular schedule to check your portfolio, like once or twice a year. This helps you stay on track without making too many changes.

Diversify Assets

Don’t put all your eggs in one basket. Diversifying your portfolio means spreading your money across different types of investments, like stocks, bonds, and real estate.
A table below shows how different portfolios performed during tough times:

When you diversify into different assets, you lower your risk. If one part of your portfolio drops, another part might hold steady or even go up. This balance helps protect your money during rough times.

Keep Investing

It’s easy to stop investing when the market feels scary. But if you keep investing, even in small amounts, you can take advantage of lower prices.

• Regular investing helps you buy more shares when prices are low and fewer when prices are high.
• Over time, this can lower your average cost and help your money grow faster.

Note: Make a plan to invest a set amount each month. This habit builds wealth and keeps you from trying to time the market.

Buying the Dip

You may have heard people talk about buying the dip. This means you invest more when prices fall, hoping to profit when they rise again.
Buying the dip can work if you have extra cash and a strong emergency fund. It’s not a guarantee, but it can boost your returns if the market recovers.

• Only use money you don’t need for daily expenses.
• Don’t borrow to buy the dip. That adds risk.

Caution: Sometimes prices keep falling after a dip. Make sure you’re comfortable with the risk before you invest more.

Don’ts for Investors

Panic Selling

Panic selling happens when you let fear take over and rush to sell your investments after prices drop. This reaction can hurt your long-term goals. When you sell in a panic, you often lock in losses and miss out on the chance for your investments to recover.
Here’s what research shows about panic selling:

• Many investors make fear-based decisions because of cognitive biases like loss aversion. This means you feel losses more strongly than gains, so you want to avoid more pain by selling quickly.
• Over the past 200 years, stock markets have shown resilience. If you hold on during tough times, your investments usually grow in value over time.
• People with more financial knowledge are less likely to panic sell. They understand that markets go up and down, and they stay calm during a market downturn.
• Wealthier investors and those who get advice from professionals tend to avoid panic selling. They have more resources and better support.
• Financial education helps you spot your own biases and make smarter choices.

Tip: Before you sell, take a moment to ask yourself if you’re acting out of fear or following your plan.

Timing the Market

Trying to guess the best time to buy or sell is called timing the market. This strategy rarely works. Even experts struggle to predict when prices will rise or fall.
If you try to time the market, you might miss the best days when prices jump back up. Missing just a few of these days can make a big difference in your returns.
Instead of guessing, stick to your plan and invest regularly. This approach helps you avoid costly mistakes and keeps your money working for you.

Borrowing to Invest

It might seem tempting to borrow money to buy more stocks when prices drop. This move adds a lot of risk. If the market keeps falling, you could lose more than you invested and still owe money.
Banks, including Hong Kong banks, may offer loans for investing, but these loans come with interest and strict rules. If you can’t pay back the loan, you might have to sell your investments at a loss.

Note: Only invest money you already have. Avoid using borrowed funds, especially during uncertain times.

Ignoring Emotions

You might think you can ignore your feelings when investing, but emotions play a big role in your decisions. Fear, greed, and stress can push you to make choices that hurt your long-term goals.
Financial literacy helps you manage these emotions. When you understand how markets work, you feel more confident and less likely to react out of fear.
Try these steps to keep your emotions in check:

• Take a break before making big decisions.
• Talk to someone you trust, like a financial advisor or a friend.
• Remind yourself of your long-term goals.

Drastic Changes

Making big changes to your investment plan after a crash can do more harm than good. If you sell everything or switch your whole strategy, you might miss out on the recovery.
Small adjustments, like rebalancing or reviewing your spending, work better than sudden moves.

Callout: Stick to your plan. Review it once or twice a year, not every time the market moves.

Remember, staying calm and avoiding these common mistakes can help you reach your financial goals, even after a tough market downturn.

Protect Against a Stock Market Crash

Image Source: pexels

Build Cash Reserves

You want to have cash ready for emergencies. Cash reserves help you stay calm when markets drop. Many companies keep extra cash to handle tough times, and you can do the same. Here’s why building cash reserves works:

• Companies facing more risk save more cash to stay stable.
• Firms with higher cash holdings bounce back faster after a crisis.
• Extra cash lets you keep spending on important things, like home repairs or medical bills, even if your investments lose value.

Tip: Try to keep enough cash to cover three to six months of living expenses. This simple step can protect against a stock market crash and give you peace of mind.

Increase Savings Rate

Boosting your savings rate is a smart move. When you save more, you build a cushion that helps you handle market swings. Over the past decade, people have increased their savings by about 10%. Even during tough times like the COVID-19 pandemic, many kept saving. In 2024, almost half of workers raised their savings, either by choice or through automatic plans. This steady saving helps you avoid panic and keeps your financial goals on track.

Note: Set up automatic transfers to your savings account. You will save without even thinking about it.

Explore Alternatives

You do not have to put all your money in stocks. You can look at other options, like bonds, real estate, or even cash accounts with Hong Kong banks.These choices can lower your risk. A mix of different assets helps you protect against a stock market crash. If one investment drops, another might hold steady or go up.

Review Spending Plans

Take a close look at your spending. Make sure you know where your money goes each month. If you spot waste, cut it out and save the difference. Careful planning helps you stay ready for surprises. When you control your spending, you can keep investing and avoid selling at the wrong time.

Callout: Review your budget every few months. Small changes now can make a big difference later.

Why Did the Market Crash Today

Common Causes

You might wake up and wonder, why did the market crash today? Many investors ask this question when they see big drops in their portfolios. Several things can cause a sudden market crash. Sometimes, it starts with technical signals. For example, the Wilshire 5000 total U.S. stock market capitalization recently closed near $60.37 trillion. This number is close to all-time highs, but the chart shows a double top pattern. Traders see this as a warning sign that prices could fall.

You may also notice that smaller companies, tracked by the Russell 2000 index, and the equal-weighted S&P 500 have not kept up with the biggest stocks. This underperformance shows that investors feel nervous and want less risk. The VIX, known as the fear index, has jumped higher. When this happens, it means people expect more ups and downs in the market.

Another reason people ask why did the market crash today is because of overvaluation. The Buffett Indicator, which compares the total U.S. stock market value to the country’s GDP, now stands at 200%. This is much higher than normal and tells you that stocks cost a lot more than the economy can support. Even though 10-year U.S. Treasury bonds pay only 4.09%—lower than the 50-year average—investors have pushed into stocks, making prices even higher. If interest rates rise, stocks could drop fast.

Trade tensions also play a big role. The U.S. recently set 25% tariffs on goods from Canada, Mexico, and China. These countries answered with their own tariffs. This back-and-forth has made markets more jumpy. Companies worry about supply chains, higher costs, and lower profits. All these factors help answer the question, why did the market crash today.

Staying Focused

You might feel worried when you see headlines asking, why did the market crash today. It’s easy to get caught up in the news and feel like you need to act right away. Try to stay calm and remember your long-term plan. Markets go up and down, but history shows they often recover.

Tip: When you hear why did the market crash today, pause and review your goals. Ask yourself if anything has changed for you personally.

Here are some ways to stay focused:

• Review your investment plan before making changes.
• Avoid checking your portfolio too often.
• Talk to a trusted advisor if you feel unsure.

You can’t control the news or the market, but you can control your actions. The next time you wonder why did the market crash today, remind yourself that staying steady often works best.

Recovery Tips

Set Realistic Goals

After a market crash, you might feel lost or unsure about your next steps. Setting realistic financial goals can help you regain control. When you set goals that match your current situation, you give yourself a clear path forward. Research shows that people who set realistic goals are much more likely to achieve them. In fact, 68% of goals are fully achieved after 12 months when they are realistic, and goals that seem less difficult have a higher chance of success. You can use simple methods like writing down three goals and reviewing them every few months.

• Try using the SMART method: make your goals Specific, Measurable, Achievable, Relevant, and Time-bound.
• Keep your goals simple and focus on what matters most to you.

Tip: When you set goals with someone else, like a financial advisor, you are more likely to reach them. Collaborative goal setting leads to better results than going it alone.

Learn from Experience

Every market crash teaches you something new. Take time to look back and see what worked and what did not. Many flash crashes recover quickly, sometimes within a single trade, because the market has built-in ways to bounce back. This shows that staying calm and trusting the process can pay off.

• Write down what you learned about your own reactions.
• Think about how your plan held up during the downturn.
• Adjust your approach if you found weak spots.

You can use these lessons to make better choices next time. Remember, even mutual funds play a big role in helping markets recover by providing liquidity when it is needed most.

Seek Advice

You do not have to handle recovery alone. Getting guidance from a financial advisor can help you avoid mistakes and stay on track. Talking to an advisor gives you a chance to ask questions and get answers that fit your needs.

• A financial advisor can help you review your financial goals and adjust your plan.
• They can also help you set review dates and keep you accountable.

Note: If you feel unsure, reach out for help. Good advice can make a big difference in your recovery journey.

You now know the most important dos and don’ts after a market crash.

• Stay invested, keep saving, and review your plan.
• Avoid panic selling, borrowing to invest, or making big changes too fast.

Remember: Discipline and patience help you reach your goals. Use this experience to build better habits. You can move forward with confidence and make smarter choices for your future.

FAQ

What should I do if I need cash but the market is down?

You can use your emergency fund first. Try not to sell investments at a loss. If you must sell, choose assets that have dropped the least. Plan ahead so you do not feel rushed.

Is it a good idea to buy more stocks after a crash?

Buying more can help if you have extra cash and a strong emergency fund. Prices may drop further, so only invest money you do not need soon. Stay patient and avoid using borrowed funds.

How can I avoid panic selling in the future?

Set clear goals and review your plan often. Remind yourself that markets recover over time. If you feel worried, talk to a financial advisor or someone you trust before making big decisions.

Should I move all my money to cash during a crash?

Moving everything to cash can lock in losses. You might miss the recovery. Instead, keep a mix of investments and cash. Review your plan and adjust only if your needs or goals change.

After a market crash, staying calm is key. The S&P 500 rises 74% over time, underscoring the value of a long-term view and avoiding panic selling. Ensure a 3-6 month emergency fund, rebalance, and diversify to manage risks effectively. Ready to rebuild with confidence? Sign up for a BiyaPay account in just 1 minute to trade U.S. and Hong Kong stocks, navigating volatility with ease. BiyaPay offers remittance fees as low as 0.5% across 190+ countries and fee-free conversion of 200+ digital currencies (e.g., USDT) to USD, HKD, and JPY, simplifying fund management. Embrace regular investing and expert advice to seize recovery opportunities!

Start your resilient investment journey now! Join BiyaPay.