How to Survive When Stocks Behave Badly

how to survive when stocks behave badly

When stocks are shaky and your portfolio decreases significantly, it’s not a pleasant place to be. But market crashes are inevitable. Most of these are even just short bursts of market downturns.

Fortunately, there are things you can do to survive when stocks misbehave. Here are eight strategies to consider.

8 Tips on How to Survive When Stocks Behave Badly

bear market

1. Focus on the Longer Term

It’s easy to get caught up in the moment and do things rashly when the stock market crashes. As a result, the market’s panic will quickly affect you if you let it. 

One of the best ways to survive when stocks misbehave is to focus on the longer term. Pay attention to the actual business instead of the stock because stocks fluctuate more than the business.

Solid businesses with strong prospects can pull through the downturn, just as they’ve done in the past. However, there’s no guarantee that weaker assets or companies will. Therefore, it’s best to understand if you’re investing for the long-term or a short-term trade.

2. Don’t Panic Sell

When stocks misbehave, it’s tempting to ask your financial advisor or yourself, “Should I take my money out of the stock market?” Although understandable, that’s probably not the wisest course of action.

So, do not panic sell unless you need that cash or have a good reason to change your plans. People who panic sell during a market crash regret their decision often. 

An excellent example is the people who left the market in spring 2020 when the S&P 500 dropped by more than 30% in a short period. 

By the summer of 2020, those people were already regretting their choice. The pandemic rally erased the early Covid-19 stock market losses. Additionally, the excitement of reopening allowed many companies to come back in force, pushing the S&P 500 into the green.

Knowing your risk tolerance will help you pick the best investments and prevent you from panicking when stocks act up.

3. Rebalance Your Portfolio

During a long bull market, your equity holdings may increase or decrease in value more quickly than your cash holdings or bond. This may throw your portfolio out of alignment with your desired asset allocation.

So, if you want to survive a stock market crash, take it as an opportunity to address any imbalance that may have occurred. For instance, if equities comprise a large portion of your investment, now could be the time to sell some stocks and move your money into bonds or cash equivalents. Still, it depends on your particular situation and market conditions.

It’s essential to choose assets that are not correlated. Their price movements don’t go up and down together but at different times. 

Remember that a market crash is an excellent way to know whether you have sound risk tolerance. If not, consider alternative investments, cash, or bonds to your asset allocation.

4. Find Strategic Opportunities

Defensive stocks, such as healthcare, utilities, consumer staples, and companies with high-quality balance sheets and businesses, can potentially offer opportunities despite a market downturn.

Therefore, you may want to look for opportunities in these stocks that pay dividends, particularly those whose dividends have consistently increased in the past. This type of stock will increase your return when some stock prices are falling.

Another strategic opportunity is to consider a fiduciary account, which means it’s professionally managed. For example, some mutual funds have investment teams that manage fund portfolios. These teams respond to market conditions and rebalance if necessary.

Professionally managed funds have the potential to outperform passively managed funds when the stock market is challenging. Compare that to index funds, where they combine firms of poorer quality or risky companies with the good ones.

5. Use Dollar-Cost Averaging

The safest way to make purchases when the stock market fluctuates is to use dollar-cost averaging. It means investing a fixed amount of money at regular intervals for a certain period, regardless of price.

This investing technique is powerful in a bear market because you can “buy the dips” or stocks that have fallen from a recent peak. It may look scary, but it calms the ups and downs of your average purchase price.

Spreading your buys using the dollar-cost averaging reduces your risk. It’s because you won’t have to invest all your money when the stock market is at a specific price point. Eventually, it’ll likely free you of the fear.

6. Go Short or Invest in Inverse ETFs

When the stock market is in turmoil, one way to profit is to go short. Short selling involves borrowing shares of a brokerage or company and selling them to other buyers. To close the trade, the short seller buys back the shares (at a lower price) to repay the amount loaned to the broker.

Short selling is a smart investing move in a bear market because you can profit from an asset’s price decline. 

Moreover, you can also profit from declining benchmarks or major indexes through inverse exchange-traded funds (ETFs). When major indexes fall, ETFs go up and allow you to earn while the rest of the stock market suffers. You can purchase these funds easily from a brokerage account.

7. Stay Away From the Flashing Headlines

Checking your portfolio daily can lead you to make short-term and emotional decisions. At best, check your investments only weekly, monthly, or once or twice a year. Doing so will guard you against fear and anxiety that may be triggered when stocks behave badly.

Take a conscious step to avoid the flashing headline to help you think objectively and clearly about your investment portfolio.  

Even the colorful investment and finance personalities on social media can sensationalize news and present their opinion not based on facts. Don’t get caught up when emotions run high and the markets melt.

So, consider deleting your social media to take a breather, especially if you panic scrolling your feed about the stock market. In addition, reducing your exposure to the news about falling stock prices can help you make a more rational decision and even take advantage of the situation.

8. Use Options Contracts

If you feel that a bear market is coming, one way to cushion your portfolio is to use options contracts. The beauty of this strategy is it allows you to capitalize on the decline before the expiration.

Bottom line

how to survive when stocks behave badly

Despite the turmoil in the market, staying invested is more rewarding than exiting and panicking.

Stay the course, get your portfolio in order, and identify the risk of each holding. Follow some tips above to keep your perspective on the market and tilt the odds in your favor.

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Hi I'm Paul Koger, an ex-Prop Trader now trading from the comfort of my own home. My area of expertise is swing trading US equities, Although I have a strong interest in anything that is trading related. In case you want to get in touch - try Twitter @paulkogr or


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