Worried About A Stock Market Crash? Here’re 2 Key Things 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.

1. Where do you want to go today? head here

2. The humble shopping list

“I could improve your ultimate financial welfare by giving you a ticket with only twenty slots in it so that you had twenty punches – representing all the investments that you got to make in a lifetime.”

— Warren Buffett

The vast majority of us have limited time and money.

As such, we might want to take a cue from Warren Buffett on how we should think about the stocks we want to invite into our own portfolio. We should ask ourselves: What companies will help us achieve our goals?

To find out what these companies are, some elbow grease is in order. We need to do research on stocks we want to own, and put together a shopping list consisting of stocks we want to own. Now, all of this research may sound like mundane work, but that’s what we do each and every day here at Stock Advisor Singapore ­– and it’s something we enjoy.

This humble list can become valuable when a market downturn hits.

After all, we wouldn’t want to scramble to find suitable companies when there is a sale. You want to have the confidence to act when the opportunity arises, rather than be caught second-guessing about which stock is suitable for your portfolio. Feel free to check out our work, and see if it can help you in your investing pursuits, right here.

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.