1.Don’t Panic
When the Stock market goes down the investors get panicky and tempt to get out of the stock market. But most likely it is not the best decision because it means you might lock in permanent loss. History tells us that market bounces back after every fall and thereby selling in the down market we will miss the opportunity when the market recovers. Investors should resist the urge to sell in a panic.
2. Keep on investing regularly
Volatility is an integral part of the markets. This also applies to the stock market. By investing regularly, a fixed amount of money at regular intervals in good times as well as in bad times, you are averaging your cost. You will reap huge benefits when market recovers. The stock market runs on sentiments ahead of fundamentals therefore it moves up and down both ways on the extreme thereby bypassing the intrinsic value of assets. Therefore, rather than to sell one’s holdings in the falling market one should think about buying more because in these times the stocks are available less then their intrinsic value.
3. Resist impulsive buying
One can’t predict to what extent the market will fall. No one knows the bottom and can’t invest always and all of his funds at the bottom of the market. Therefore, one should invest in falling markets in a planned way. They should keep on investing small portion of their surplus funds with every fall in the market. One Who does not have surplus funds should stay calm and patient and wait for good times to come. History tells us that every fall is followed by ups. As growth is a permanent law of nature.
4. Diversify Portfolio
One’s aim should not be to earn highest returns but the aim should be to earn better risk adjusted returns. Therefore, one should diversify one’s portfolio to various asset classes. Because Different asset classes behave differently in a given time. Some do well, some doesn’t at the same time. One gets carried away when one asset class does better and invests heavily in that class thereby creating a riskier portfolio. Therefore, the mantra to navigate the falling market is always to maintain a balanced and diversified portfolio.
5. Longer time Horizons
One should invest in stock market only with a longer time horizons. If one needs to draw down funds soon, one should choose more conservative asset class. Investors with longer time horizon can usually handle short term volatility better. History shows that over a longer period of time markets grow and touches new highs.