Stock Market Crash: Here’s What You Should Do

Source: iStock

Source: iStock

Markets soar, and markets crash; it’s a fact of life. The simple fact of the matter is, things ebb and flow, and we all end up taking a beating here in there. Especially if you’re a player in the stock market.

With recent seismic shifts happening on the New York Stock Exchange, NASDAQ, and nearly every other stock market worldwide, it’s hard to understand just what exactly is going on — and what your own, individual response to it should be. If you tune in to CNBC or CNN, you may be inspired to go into full-on panic mode, as images of sweating traders, solemn and worried Jim Cramers, and sharply declining line graphs will indicate that things are not as they should be.

And there is reason to worry. Especially if you have ‘skin in the game’, so to speak. Just look at what happened to the fortunes of Jeff Bezos and Mark Zuckerberg during the recent market rollercoaster ride: they lost billions. Of course, if you’re already worth tens of billions, it’s not that big of a deal, but a big deal nonetheless. Remember: everything is relative.

If you’re not a billionaire, then it’s easy to get extremely panicky in situations in which the markets start to crash. After all, you have less financial padding to absorb these kinds of hits. And watching your money evaporate right before your eyes, because of events in China that you have no control over, can be incredibly stressful.

So, what should you do during turbulent times on the market? Look for advice from the people who have managed to come out on top, somehow, crash after crash. Like Warren Buffett.

Millions of people listen when Buffett offers advice, but it seems that few act on it. Buffett’s advice on crazy market fluctuations? Do nothing.

“To buy or sell on current news is just crazy,” Buffet said, during an appearance on CNBC in 2012. “You’re in a wonderful business. You’ve got people running it for you. You know you’re going to do well over five to ten years. And to think news events should cause you to dance in or out of something that’s a wonderful game is a terrible mistake.”

And he’s not the only one preaching the gospel of holding on to your investments. In fact, lots of analysts and investors love it when the market fluctuates — it provides an opportunity to invest at a premium. Almost like stocks go on clearance. Of course, you’re running the risk that those prices won’t recover, and eventually grow. But if you look at recent history, you’ll probably be fine; just a handful of years after the biggest economic collapse in recent history, the stock market hit record levels.

Now, even if you don’t have your money tied up in the markets, there’s reason for concern, and above all, to pay attention. When the markets crash, and people start to panic, it can have big and sometimes disastrous effects. Those can manifest in a number of ways. A little panic selling can lead to more panic selling — meaning you could see your other investments lose value, or even see a decrease in your job security as employers grow cautious over rumblings in the market.

Look at what happened during the Financial Crisis in 2008 and 2009. The markets tanked, dominoes kept falling, and we ended up with the worst economic situation since the Great Depression. While that was a (hopefully) once in a lifetime event, these are the types of dangers that exist. When traders and investors get spooked, bad things can happen.

We’ve written about how you can protect yourself from these types of situations, but it goes to illustrate that you should be paying at least some attention to the markets and overall economic picture, even if you don’t have any direct financial gains or losses from fluctuations in stock prices.

So, when things get ugly, you’re best bet is to probably stand still, while paying close attention to what’s going on. Even if you don’t own any stocks, these things can effect you indirectly. Keeping your head completely in the sand, just because you have no direct financial benefit, won’t help you.

Follow Sam on Twitter @SliceOfGinger

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