Markets

3 Moves to Make If the Stock Market Plummets Tomorrow

The stock market is one endless rollercoaster of ups and downs, and there's always a chance that another downturn is around the corner.

Despite the phenomenal returns the stock market has earned over the past year, it can't keep climbing forever. Sooner or later, the market is bound to crash.

Nobody knows when, exactly, that will happen, but market downturns are inevitable. Here's what to do if it happens soon.

Three people sitting at a table looking at charts

Image source: Getty Images.

1. Stay calm

Market crashes can be unnerving for even the most seasoned investors, and it's normal to worry about your investments. But making major decisions when you're feeling panicked rarely turns out well, so the best thing you can do when stock prices plummet is to remain calm.

That's easier said than done, of course, but remind yourself that market downturns are normal. Since 1928, there have been 21 separate instances when the S&P 500 fell by at least 20%, according to data from consulting firm Yardeni Research. And in every single one of those instances, the market was able to recover.

No matter how bad things may seem in the moment, remember that it will get better. Stay calm, focus on the future, and try your best not to make any impulsive decisions.

2. Avoid pulling your money out of the market

One of the worst moves you can make during a downturn is to pull your money out of the stock market. Not only does this limit the potential of your investments, but it can cost you more than you may think.

When the market plummets, stock prices fall. That means your investments are less valuable than they are when the market is thriving and prices are higher.

If you purchase your stocks when prices were high and then sell them when prices are lower, you may end up selling your investments for less than you paid for them. Then if you decide to reinvest after the market bounces back, you're buying, once again, when prices are high.

It can be tempting to panic-sell your stocks when the market is volatile, but that could be a costly mistake. Instead, try to avoid touching your investments at all. By leaving your money alone, you can simply ride out the storm. When the market recovers, your investments should bounce back, as well.

3. Consider investing more

The silver lining to market crashes is that stocks are essentially on clearance. Stock prices are lower than usual, and you have the perfect opportunity to load up on quality investments for a fraction of the cost.

The key here is to stick to strong investments and avoid buying shaky stocks just because they're on sale. Bad investments are bad investments, regardless of how much they cost, and you may end up regretting them later.

To make sure you're buying only the best stocks, make a list of investments you're interested in before the market crashes. This way, you have plenty of time to research stocks and make sure you're making good investing decisions when prices fall.

Finally, only invest if you can afford to do so. If you don't have an emergency fund or are having a tough time paying bills, those should be your first priorities. Only consider investing once your financial situation is in good shape.

Stock market downturns can be intimidating, but even the worst crashes will eventually pass. By making sure you're as prepared as possible, you can rest easier, no matter what the market does.

10 stocks we like better than Walmart
When investing geniuses David and Tom Gardner have an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Walmart wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

Stock Advisor returns as of 2/1/20

The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More