Everyone loves a bargain, and you may already be aware that when it comes to investing, there’s usually no better time than a market crash to pick up stocks and shares at a discount.
However, it’s not just a case of throwing money at the wall and seeing what sticks. Interestingly, there are some lessons you can apply from shopping the Black Friday sales that will help you with your investment choices.
Here, I take a look at how you can harness the power of savvy retail shopping and apply it to your investments.
Why is it worth investing during a stock market crash?
Crashes take place periodically, and when they do, it can feel awful seeing the paper value of your investments drop.
But this drop in value can actually lead to some exciting opportunities. This is because when a big market crash is triggered and a sell-off happens, there are usually many undeserving casualties of war.
Piles of stocks and shares end up bleeding through no real fault of their own. Often, they are impacted by the negative wider economy rather than something fundamentally changing or going wrong with the business. We saw this just recently during the crash at the beginning of the coronavirus pandemic.
But if you’re a patient investor, you can go out and rescue some of these investments from the battlefield. You can then nurse them in your portfolio while they recover. Once the whole market gets back on its feet, many of these downtrodden shares see big bounces. This can give your investment portfolio a real boost.
How do Black Friday lessons help with investments?
Like Black Friday, a bear market offers you lots of buying opportunities. But also like Black Friday, there’s still a lot of junk out there. Not everything on sale is worth buying and this applies to stocks and shares as well.
If you invest smartly, you can pick up investments that you would otherwise have paid more for. But just as you need to shop around on Black Friday, you need to avoid blowing all your cash on the first investments you find.
How can you invest like it’s Black Friday during a crash?
To help make sure you capitalise during a stock market sale, here are some good rules to follow:
- Try and buy investments that you would have bought at full price – don’t invest in something simply because its market value has dropped. Cheap doesn’t always mean good value.
- Have some cash set aside to be able to invest during a crash or dip – don’t sell off other investments at a loss or use any type of credit.
- Set a budget and don’t overstretch yourself – paying a lower price for stocks is awesome. But don’t get carried away and spend more than you can afford.
- Make sure you’re still doing lots of research – not every stock will bounce back from a crash. So do your due diligence before making a purchase.
- Distinguish between value and junk – check the track record of how a stock has bounced back in the past and run through the company’s balance sheet to make sure it can weather the storm.
- Don’t rush yourself – during Black Friday, retailers will try to pressure you with time limits. And when a crash happens, you might feel pressured to buy those shares. But sales and bear markets can last a while, so don’t panic. There will always be more opportunities!
How can you start investing before, during and after a stock market crash?
Crashes and dips are just part of the market cycle. No one can predict with any certainty when they’ll happen.
Just as with Black Friday sales, it’s best to prepare yourself in advance. Setting yourself up with a cheap share dealing account will lower your costs and make sure that if you do make a high number of trades at some stage, you won’t pay through the nose for doing so.
It’s also vital to pair up with a top-rated stocks and shares ISA to make your tax situation much more straightforward. This is because you can buy shares at leisure without stressing about paying any tax on the gains.
Just remember that all investing carries risk and the value of your investments can go up or down. Even if a stock has a solid history of recovery, past performance doesn’t dictate future results. So take every step you need to prepare yourself and your portfolio for times of turbulence.
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About the author
George is a writer and qualified financial adviser focused on educating others in personal finance & investing.
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