The best tactics when market is falling are,
Buy When Everyone Else is Selling - The standard investing advice on Wall Street has always been to buy when everyone else is selling. Is this a strategy that you plan to follow?
If you do, at what point do you start buying and how aggressively?
One of the problems with this strategy is that you could buy-in after the market has fallen. So what happens if, over the next year the market falls another 30% from that level? You may not take as big of a hit as people who bought in at of the top, but youll be taking a large hit nonetheless.
The previous two market slides have shown that a drop of 50% or more is hardly out of the question.
Sell and Limit Your Risks - Another option is to start selling, so you free up your cash and can buy stocks later at bargain prices. This is an excellent strategy, but there is one serious flaw. At what point do you push the panic button and begin selling again?
Trying to sell into a declining market can be something like chasing a greased pig. A 10% or 20% decline in the market is hardly uncommon.
If you sell after the market has sold off, there is a huge risk that the market will turn up, locking in your losses and preventing you from participating in the recovery.
The basic limitation is that you can never know if a drop is a routine correction or the beginning of a protracted decline.
Hold and Stick to Your Game Plan - If a market decline turns out to be a correction as most are itll be easy enough to just ride it out until the market resumes its climb.
But during more serious declines, like the 1973-74, 1987, 2000-02, and 2007-09 markets, the ride down can be serious white-knuckle time. Those are the kind of markets that test even the most committed investors resolve.
Even though in each case the investors who held on well past the crashes were handsomely rewarded for their perseverance, its often difficult to accept that concept after stocks have fallen significantly and are continuing to do so. It can take nerves of steel, and not everyone has that.
Surviving Bear Country - A bear market refers to a market-wide decline in stock prices of at least 15-20% coupled with a pessimistic sentiment about the market. Clearly, these times are nothing to look forward to, but fighting back can be dangerous. Don't despairthere is hope! Here we will walk you through eight important investment strategies and mindsets to help you stay calm and play dead when the stock market takes a swipe at your returns.
Diversify - Having a percentage of your portfolio spread among stocks, bonds, cash and alternative assets is the core of diversification. How you slice up your portfolio depends on your risk tolerance, time horizon, goals, etc. Every investor's situation is different. A proper asset allocation strategy will allow you to avoid the potentially negative effects resulting from placing all your eggs in one basket.
Invest Only What You Can Afford to Lose - Investing is important, but so is eating and keeping a roof over your head. It's unwise to take short-term funds (i.e. money for the mortgage or groceries) and invest them in stocks. As a general rule, investors should not get involved in equities unless they have an investment horizon of at least five years, preferably longer, and they should never invest money that they can't afford to lose. Remember, bear markets, and even minor corrections, can be extremely destructive.
Consider Inverse ETFs - Inverse exchange-traded funds (ETFs) give investors a chance to profit from a decline in major indexes or benchmarks, such as the Nasdaq 100. When the major indexes go down, these funds go up, allowing you to profit while the rest of the market suffers.