How To Get Through A Market Downturn

Investing, whether it is stocks or cryptocurrency, is all about taking the good with the bad. Having a plan and seeing it through. This is much easier said than done, admittedly. What you need to understand is that downturns happen. They are an inevitable part of investing. 

 

When you put money into the market or cryptocurrency, you expect to make a return. In most cases, you will make a profit from your investment and even cryptocurrency. Even with a bust you can still make money and in fact you should have that as part of your strategy. Instead of trying to fight the busts you should try to make sure that you can weather the storm and come out stronger once it passes. 

 

In this article, we will go over several strategies to handle a downturn in the market so you can still be in good shape.

 

Cryptocurrency risks

 

Anybody that knows how to buy Ethereum in Canada knows that cryptocurrencies are volatile. There are many booms and busts over the years. In fact, it is precisely because the currencies are volatile that many investors are attracted to them. The adage buy low and sell high comes to mind. When there are busts, it is an excellent opportunity to buy low.

 

The problem is that many investors in cryptocurrency are in it for the thrill of huge gains in short amounts of time. The investing strategy is much different for them than if they put money in the stock market or bonds. 

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Cryptocurrency trading takes a different kind of strategy to succeed. If the currency is in a bust cycling and dropping quickly in value, it is likely to go for a deep crash. Many investors are not in it for the long term and aren’t what would be considered serious by other investors. This means that they get spooked very easily.

 

If you already have money in bitcoin and the value is dropping, the best thing to do is wait it out. If you sell, you’ve already lost money. Try to remember that the last time there was a big drop like the one that is happening right now was when bitcoin dropped from over $15,000 in value to a little over $3,000. Right now bitcoin has dropped to almost half what it was worth a few months ago but is still over $35,000 at the time this was written. This means that it is still trending up even with this dramatic drop figured in. 

 

If you are thinking of buying on the drop, consider that it could continue to lose value. It is far more difficult to make predictions with cryptocurrency than it is with the stock market. However, paying attention to what caused the crash to begin with will help you understand if those factors are going to influence if or when it bounces back. 

 

For instance, right now inflation is playing a big part in the sell off as people are moving out of cryptocurrency and into high yield savings accounts due to high interest rates. It is a good bet that once inflation has started to drop back to normal levels that people will pull out of accounts when the interest rate drops. 

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Stock market panic

 

Just as is the case with cryptocurrency, if you panic and sell when the market is dropping then you definitely lose money. If you can be patient then you can always wait for the market to correct and then you don’t actually lose any money. 

 

You do a panic sell, wait for the stocks to hit bottom and then reinvest and see if you can stop the bleeding that way. However, this has you starting out from a loss right from the beginning so when the market does gain your gains will be smaller than if you had simply not sold your stocks. 

 

Another strategy that people like to do is to time the market. They scour the news looking for clues as to when the next crash will occur so they can sell before it happens. Then they feel they’ll be ready to buy when it drops and make even more money.

 

As an overall strategy it isn’t a good one. It is very difficult for people to time the market unless they have inside information. What you could do is have two different investment schemes going at the same time. One can be your experimental one in which if you lose money it won’t hurt you financially. The other is for your investments where you take a measured and steady approach. 

 

With the risky portfolio, try to invest in certain commodities that do well when the rest of the market takes a dive. Things like copper, oil, and energy are examples of commodity hedging that people try when they sense a downturn about to happen. You can sell off your stocks, buy commodities and wait for the correction. Then buy back what was working for you before. 

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The best thing you can do is to just try to diversify your portfolio so you have a wide assortment of investments. Have some money in real estate, in commodities, stocks and even cryptocurrency. Have automatic deposits come out of your paycheck into your investment accounts so you are always building your portfolio. When things happen with the market, then wait it out. This is the smartest thing you can do. 

 

Just make risky trades with money you can afford to lose without risking your entire portfolio by making a panic decision. If the risky one pays off then consider yourself lucky and still don’t be tempted to do the same with the rest of your portfolio. 

 

Conclusion

 

A diverse portfolio is the best recipe to be able withstand an inevitable downturn. If your portfolio is out of balance then simply make sure to unload bonds for stocks or something similar as there is a historic precedent you are following. Just don’t panic!