6 Ways to Survive in a Market Crash

currencies-3Mr. Keynes, one of the most respected economists of al times, the one who’s doctrines are still running many countries, has once remarked: “Blessed be our nephews, becasue they shall inherit the national debt”. In the same manner, they shall inherit the outcome of our investment strategies and fortunes, so why not start now in a positive manner?
We at doitinvest.com compilled several pieces of advice to help you survive (or even prosper) in this unprecedented financial crisis. With a little bit of luck and a lot of work, you might one day become a famous investor, my reader, or at least have a peaceful stress-free life.
Let’s proceed:
1) Never invest money you really need

Do not even think about it! If you owe money to the bank for your mortgage or if you need those money for your pension, do not risk them! A crashing market is very stressful and very volatile, so you can loose all you invested in, therefore focus on reducing your debt and making some surpluses.

Furthermore, in a crashing market debt tends to become very costly. This means that you will pay a very high interest, and therefore it is in your favour if you pay first your debt and then invest. In other words, earning a 5% on your investments made with borrowed money is producing losses if you need to cover your 7.5% interest on mortgage, so pay attention to the yileds differentials.

2) Never borrow money to invest

Actually there is a form on investing, called short selling, which is based on borrowing money for your broker to buy and sell instantly some shares, with the forecast that those shares will fal in price and you will repay the loan to your broker in shares later.  Short selling contributed substantially to the collapse of the stock exchanges in September-November 2008 and was banned by the SEC later.

3) Diversify

Never put all your eggs in one single basket. Never buy all the shares in one type of industry, unless you can afford and like a lot gambling. Buy shares from different industries and try not to buy shares from your employer, since if they are going to fire you they will probably not do very well 🙂

4) Buy long term

If you think you are going to cash in you profits in less than one year, better think again. Experts forecast that the current recession will end at soonest in 2010, and some of them indicate that this will happen considerably later, so avoid this trap. The profits can be made after the market starts to rise and after a period of incerases, which usually is at least 6 months after the recovery, so please be patient with your investments. And if you think that your current investments are solid but they are undervalued by the market, don’t panic – keep them longer (of course, if you can afford to).

5) Watch the market but not too often

Looking at the current volatility of the markets can induce you a sense of panic. The way that DJIA goes up and down like a yo-yo or the way that the current real-estate fortunes are dissipating is really scary. however, remember that this is a recession and things are supposed to go this way. Most fortunes are made by those who manage to own as many investment assets as possible at the end of the recession, so this is really a waiting game.

6) Use your common sense

Never relly 100% on other’s advice. After all,  you are investing your own money. Always try to look at an investment with your own eyes and try to make sense of it. Ask yourself questions – does it make sense to enter such a market? Is it worth the trouble? What is the investments yield calculated by myself? These are questionsyou should always ask for yourself. The brokers have an interest in selling you things, so they are biased.

We at doitinvest.com hope that this beginner’s (or advanced) investment blog has been of use for you. And of course, our editorial team is waiting for your comments!

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