In this article
- Analyze as many factors as possible that lead to a result
- Train your mind to see opportunities where most people don’t
- Invest when it seems like the stock market is about to bottom out
Introducing: Stock Market Crash of 2020
I’ve been hearing a lot lately how many of my friends are worried about experiencing another stock market correction – or recession – like the one we had in March of 2020 or in late 2008 / early 2009.
Although I understand that many fear a stock market crash, it’s a little more difficult for me to understand why those of us who are in our 20’s, 30’s and even 40’s are still worried about a crash.
In fact, I remember the dreadful “D-word” (depression) being thrown around by some of the most esteemed and respected investment professionals in early 2020, as the COVID-19 pandemic crossed unprecedented thresholds.
It’s certainly disquieting to think that we, could experience a 1929-like depression.
That’s what I asked my friend Olivia after we reviewed her personal financial situation in depth.
It turns out that fear is what was ruling and driving Olivia’s investment strategy – or lack thereof.
That’s something that needs to be addressed immediately and corrected.
Below I want to explain my mindset on how I view stock market corrections and turn them into my gain.
Stock Market Crash: A Different Perspective
What is the first thing that comes to your mind when you hear the word “recession” or “crash?”
I can guarantee you that for most people, one of the first words or phrases that pops to mind is “loss of money” or “loss of job” or something else that has a negative connotation.
Do you see the difference?
It’s all about perspective and mindset.
One person immediately considers a crash to be a bad thing not only to the economy but also to their financial picture.
Another may consider a crash to be a positive thing.
This scenario is pretty similar to the “glass is half-full” versus “glass is half-empty” scenario.
I would also add another perspective to this age-old saying: the glass is always refillable.
Don’t Allow the Past to Impact your Future
In the words of William Shakespeare’s Lady Macbeth, “What’s done is done.”
This means whatever happened in the past – let it be in the past.
Take Olivia for example.
Although she did not directly experience the 2008 stock market crash, her parents did and she likely felt the sting of the crash throughout her household.
Her parents were directly impacted by the 2008 financial crisis, which means that Olivia in one way or another was also impacted (for example, selling the house and moving to an apartment, no more vacations, selling the second family car, etc.).
Olivia refused to go through what her parents went through in 2008. I get it.
Yet, Olivia still believed that if she were to invest in the stock market, then a similar financial disaster could befall her.
Luckily for her, she still is young so she can still invest and has time on her side.
It may not have looked as rosy for Olivia if she were a few decades older, as time is one of the most important elements to making an investment strategy work.
How to Turn a Stock Market Correction into a Gain
I’m going to ask you 2 questions.
Question #1: Who here likes shopping (assuming you have an unlimited budget)?
Shopping for anything:
To be honest, I would assume that almost everyone would say “yes.”
Question #2: Who here likes shopping (assuming you have an limited budget) for things on sale?
I would expect everyone to say “yes” to buying things on sale.
Now, I’m sure you’re asking what does shopping have to do with the stock market?
Let me tell you how I turned the recent March 2020 COVID-19 stock market crash into my gain.
As I mentioned earlier, it has to do with mindset.
When I see the possibility of a stock market recession, then I know it’s my time to strike.
Because I’ll be buying the stocks on sale!
Take this overview of this Vanguard total stock index fund for example.
Why would you want to buy an overpriced piece of this fund on let’s say Wednesday, February 19 at $172.17 per share where you could buy the same share for $111.91 on Monday, March 23.
You’d be saving $60.26 if you were buying during a market correction.
I’d say that’s the best time to buy!
In other words, if you had bought during a recession, you could have received the stocks on up to a 35% discount!
If you try to time the market, 99% of the time you’ll get it wrong.
And how can you get it right?
If you have a crystal ball that isn’t cloudy, you’ll likely be the wealthiest person in the world.
However, chances are you can’t tell the future and with that, I want you to stop thinking about timing the market.
Rather, consider this blog post to be an inspiration to avoid shying away from the stock market – especially during a recession. Embrace the “R-word” (recession) or even the “D-word” (depression).
It’s your opportunity to shine.
Just continue with a systematic investment plan where you continue purchasing stocks (perhaps investing an additional $100 or $1,000 if you can swing it every week) during an economic downturn.
If you’re ready to invest in the markets, then my go-to app is Acorns.
Acorns is your best bet if you want to:
- Invest automatically
- Invest in high-quality investment products
- Invest in a regular individual, Roth IRAs or Traditional IRAs
How to Make Money During a Stock Market Crash
Below are my steps, laid out in a simple manner:
Make sure you have no credit card debt
Make sure you have an adequate emergency savings fund in a high yield savings account.
Continue with your automatic periodic investment plan (you could invest bi-weekly or monthly, for example).
Keep your eyes out for market corrections.
Once your spot (or hear in the news about) a downturn in the economy, you can invest your extra cash (on top of your current automatic periodic investment plan) in the same stocks you currently invest in.
When you see that the economy is coming back, stop making the additional investments into your Acorns account and continue with your periodic investment plan.
It’s pretty simple.
You just have to be consistent with your investing strategy and make sure to optimize economic downturns.
If you are a Millennial (or Gen X’er), you have so much time on your side.
Don’t shy away from economic downturns.
Those recessions are your opportunity to make more money in the stock markets in the long run. Embrace a downturn and consider those to be your opportunity to make more money.
In order to turn a stock market correction into a gain, you have to do what many are not willing to do: invest when it seems like the market is about to bottom out.
If you see your stock market portfolio value dropping during a market recession – you’re not alone.
However, the absolute worst thing you can do during this time is selling your stock portfolio at a loss and going to cash.
Believe me on this.
Although you may not like seeing your net worth numbers decrease for weeks (or even months), you have to keep your long term goals in mind.
You will be investing for 30, 40, or more years.
If you take advantage of a small downturn now, it will only give you more buying power down the road.
Remember, buy more stocks when they are on sale – your bank accounts will thank me later!
What investment strategy did you pursue during the March 2020 recession?