In the months after the stock market crash, it normally makes up the losses. Sellers dread buying again when the demand turns up. As a result, their losses are locked in. When you sell after the crash you probably won’t recover in time to compensate for your losses.
Don’t give in to the lure of selling after an incident. It is like trying to catch a knife which is dropping. A stock market collapse forces individual investors to sell at rock-bottom prices.
Selling before the crash is your best bet. When do you tell when the recession will occur on the market? There’s a feeling of “I have to get in now, or I’m going to miss the profits,” which leads to panicked purchases. But most investors wind up buying right at the market peak. These are driven by emotion, not by financials.
Protect Yourself by Rebalancing
The best way to protect yourself from a crash is to rebalance a diversified portfolio. Even the most experienced investor finds a stock market crash difficult to understand before it’s too late.
Gold Can be a Hedge
Gold may be the best cover for a possible stock market crash. A analysis by Trinity College researchers found that gold prices rose significantly for 15 days after a crash.
There was panic among frightened investors, who sold their stocks and bought gold. Gold prices lose value against a rebound in stock prices after the initial 15 days. Investors moved money back to stocks to profit from their lower prices. Those who were holding on to gold for the past 15 days started losing money.
Most financial advisors would inform you that gold or any other single asset is not the strongest hedge during tumultuous times. You would also have a diversified portfolio that meets your goals. Your distribution of assets will help those goals.
