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How to survive a stock market crash

by ARC IDEA CO

Created on: October 24, 2007   Last Updated: February 05, 2010

After a busy day's work, you finally go to bed after checking your nice little portfolio with a couple of diversification of equities and funds. Feeling satisfied and privately congratulating yourself for being a savvy investor you go on to sleep, perhaps with a nice dream.

In the very morning the next day, you wake up and go to the bathroom. While brushing your teeth, you are already anticipating how wonderful that the market is going to be. You go to your computer and turn it on, then log in to your brokerage account. To your extreme horror, Dow Jones is down negative 100 odd points. You go to your portfolio, all the green had turned red.

Typical scenario is it? Well, simply by diversification really does not help you to survive a real market crash. When credit crunch became an issue, sub-prime woes looming, economy looking bleak and to make things worst you had bought into position a few days ago at their sky high price. To make thing really worst, you are on a contra position, which you had no intention to pick the equities up.

They are a few pointers that can actually help you to survive a market crash. Technical analysis aside, a true way to become a really robust investor.

1. Proper funds and assets allocation - Always use 35% of less for equities investment, 15% for mutual fund investment, 30% in bonds and the remaining, cash.

2. To be readily cash rich - Why? You ask. Because the readily cash are actually your ammunition during down market. Buy those blue chips when they tumble and sell them during bull market days. The most typical scenario is that most investor always had their money used up for investment at all times. They just cannot stop buying.

3. To be disciplined - When market is at all time high, bear this in mind - "What goes up will eventually comes down".

4. Understanding of market sentiment - It's not predicting, it is just some signs like everybody is talking about buying stocks and it is coming from people that do not usually invest. Well this is probably the most tradition tell tale sign of greed market sentiment. Sell!

5. Be composed at all times - When it tumble, do not panic and sell off at the first instance because it will rebound in a matter of times. You must be psychologically resistance to the fact that your are holding on paper losing stocks or funds.

With the above in placed, hold your position till up trend market will not be difficult at all because you have enough cash with you to survive and you will not be forced to sell your position at all, just babysit, that is all.

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