Worried About A Stock Market Crash? Here’s 1 Key Thing You Should Do

Market crashes can be tough to stomach.

Just think back to 16 April 2015. Imagine a new investor had decided that it was time to enter the stock market. Being new to the Singapore stock exchange, the investor decided to purchase the SPDR STI ETF (SGX: ES3), an exchange-traded fund that tracks the Straits Times Index (SGX: ^STI).

As it turned out, that very date was the highest point for the Straits Times Index in all of 2015.

From the unlucky date – 16 April 2015 – the SPDR STI ETF did an about-face and declined 26.5% before bottoming out in January 2016, almost nine months later. If the unfortunate investor invested $10,000 on 16 April 2015, he or she would have been left with $7,350 in a less than a year.

A fall like that hurts.

The upside to a downturn

But a market downturn could also be a great time to pick up stocks at bargain prices.

From the bottom on January 2016, the Straits Times Index has proceeded to rise over 27% (as of its close last Friday). Some stocks have done even better. For instance, DBS Group Holdings Ltd (SGX: D05), Singapore’s largest bank, has climbed over 51% from the January low.

But just because a stock goes up doesn’t mean that it is right for your portfolio. Let me explain.

Where do you want to go today? 

All of us come from different walks of life and have different financial goals.

For some investors, the goal is to create a separate income stream. Dividend stocks could fit the bill here. For others, it could be more about growing their hard-earned savings. Growth stocks could be more suitable in this case.

But for wherever your end goal may be, it is important that you are clear on what you would like to achieve. Stocks may go on sale during a downturn, but it is no excuse to pick up cheap stocks which do not fit your needs. It wouldn’t help your household if you walk out of an electronics sale with three vacuum cleaners – two of which you’re never going to use.

Our goals should help to guide us to the stocks that we need.

Foolish takeaway

Markets will fall from time to time.

A market crash can hurt in the short-term but it can also present investors with the opportunity to pick up bargains. We can make a big difference to our returns if we are prepared for a downturn. If we are clear on our goals, we can use a market crash to start looking for companies that fit our needs.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.