How NOT to handle 2020 stock market CRASH

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大頭起司 Cheeseonhead

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Published on June 15, 2020 1:45:01 PM ● Video Link: https://www.youtube.com/watch?v=etsh3DVBAgA

Duration: 10:01

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The stock market crash of 2020 was my first crash ever experienced, and it wasn't entirely pleasant. I went through all the stages of grief and came out a better investor because of it. This video is going to share with everyone what I'd done to handle the market crash.

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0:00 Intro
1:00 Don't panic sell
One of the most natural thing when you see your assets decreasing in value is to panic and cry, then bite your lips and cut your losses by selling. This is the worst thing that you can do, as known as panic selling. DO NOT DO IT.

The reason is very simple, if what you are holding still has fundamental value, and you don't need the money short term, you can guarantee that your assets will come back and continue to increase. The market has done this time and time again without fail, don't believe me? Let's look at some historical numbers.

The article is here: https://www.visualcapitalist.com/stock-market-returns-time-periods-1872-2018/

According to the data presented in the article in nice animation, if your investing horizon is some where in the 10 to 20 year range, the chances of losing money is extremely low compared to 1 year. You have about a 10% chance of losing money for a single 10 year period, and if you continue to invest consistently every year for 15 years, your total will almost be certain to be in the green.

Even if you have a chance to lose money during a 10 year period, the maximum loss ever recorded was a measly 4.1%, which nothing compared to all the other periods where you earned money.

If you stretch the window to 20 years, the results are even more amazing. Every single 20 year period since 1872 had positive returns. What this shows is that in the grand scheme of things, market crashes don't even matter. Remember, these numbers included the great depression of 1929, the .com bubble of 2000 and the financial crisis of 2008.

2:20 Buy and hold
However, not selling is only half the story, the other half is that you should also continue investing.

During the pandemic, I did exactly just that, but it didn't feel good, all kinds of frustration and doubt came into my mine. Only after a lot of self persuasion and Youtube videos, I finally accepted that the stock market is just having a sale, and buying at 10% off or 20% doesn't really matter, I'm making money nonetheless.

This idea calmed me down enough to just let logic decide my course of action. I still feel bad when I go into the red, but I don't allow it to cloud my judgement.

4:02 Exception
There's an exception when trading individual companies where it's better for you to sell, rather than continuing holding on. It's when the company in question is not going to make it.

Companies aren't always worth something, they can go bankrupt, they can disappear, and their stocks can become worthless. So holding on to them just because you think it should eventually bounce back doesn't mean it will. It's important to recognize when a company is too far gone and cut your losses.

4:55 Don't time the market
Ah, the great debate of the stock market. There seems to be people who think they can time the market, and there are ones who think it's impossible. I personally think it's impossible, because of studies and facts.

The stock market in the short term doesn't follow any trends that make sense, even if there are people are there that make you believe there are. Analyzing the history of the stock market doesn't project into the short term movement at all. The only thing I can predict is that in 10 or 20 years, the stock market will increase in value.

6:09 Market makes no sense
Sometimes it might seem so obvious given news where the stock market will go. Bad news, the market goes down, good new, the market goes up right? But during this pandemic, it showed me just how unrelated these two things are.

So don't try to time the market.

7:34 How to protect yourself
Since we can't predict the future, we must protect ourselves against crashes. There are three things that you should do so you aren't forced to lose money.

First is have an emergency fund, this is cash that's out of the market and can be used to cover your living expenses. This way, you never need to sell during a downturn just because you need the money.

Second is not put money you need within 3 years into the stock market. This could be the downpayment for your house or cash for your car. 3 years is considered to be pretty short in the market, meaning you have a good chance of losing money during the period.

Lastly is to properly allocate your portfolio to bonds as you get closer to retirement. Bonds are the best tool to maintain wealth. We will discuss this in the future.

8:50 Outro

#donttimethemarket #marketcrash #buyandhold

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