Worried About A Stock Market Crash? Here’re 3 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 head here

The final ingredient

“There is one more ingredient to this battle, our secret ingredient … “

– The Chairman of Iron Chef

Billionaire fund manager Howard Marks believes there are two simple things that an investor needs to make money during a downturn. If you thought the key ingredients were things such as caution, conservatism, discipline, or even risk control, you’d be wrong.

All you need, Marks says, is to have money to spend, and the nerve to spend it.

If we follow his lead, the final ingredient to taking advantage of a market decline is simply having cash on hand to act when you want to. That means, putting aside an amount of cash – whatever the figure might be – so that you can have the ammunition to buy when it matters most.

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 if we are prepared for a downturn. If we are clear on our goals, we can start looking for companies that fit our needs. And if we have a list of such companies ready, we will be more prepared to act rationally when a downturn occurs. The final ingredient, of course, is just having the cash to act.

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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.