Ways To Survive A Market Downturn

This year Darwin, Melbourne and Sydney were hardest hit, with drops of 3.9 per cent, 3.4 per cent and 3.2 per cent respectively.

Hobart was the only market to record a rise during the three-month time frame, while Canberra’s market did not move at all.

The most important thing to keep in mind during an economic slowdown is that it’s normal for the stock market to have negative years—it’s part of the business cycle. If you are a long-term investor (meaning a time horizon of 10+ years), one option is to take advantage of dollar cost averaging.

Market downturns are driven by expectations for the economy, regulation, taxation, politics, and our broader society. We believe that disciplined strategic investing will win out in the long run – which is to say, we see no greater potential loss for the average investor than when they focus on market-timing, stock picking or active trading.

For all those worried home owners your shares are all still there, they are simply worth a little less during the downturn. A stock that drops from $100 per share pre-crash to $80 per share after the crash still represents the same claim to that company’s assets and future earnings.

While your brokerage statement will show a 20% loss in value on that position, you still own exactly what you did before the crash.

So, the way to prepare for a market crash is not necessarily to artfully predict in advance, and step aside when the crash comes. That’s virtually impossible. Rather, it can be useful to consider your overall investment strategy ahead of time, so that you know you could stomach the next inevitable crash when it comes.