The memories of the 2008 financial crash are still haunting for many of us young professionals. We were all either in high school or in college, and were old enough to understand some of what was going on. Even if we didn’t know how the stock market worked or even what stocks were, we knew that times were bad and that people we losing money. We remember hearing stories of our parents and grandparents seeing their holdings drop by 30% or more in value. That means that your $100K retirement fund, something you’ve been saving for YEARS on, was now only worth $70K. Flash forward to the present; we’re supposed to be out of the recession, we saw the stock market last year post its best year since 2008 and things feel normal again. But, people are starting to get worried again, talks of a ‘10% correction’ (which means the stock market will fall 10%) are more frequent and then we had a week like last week in which the market fell 500 points, or around 3%. In such fearful times and fearing another crash, what is a young investor supposed to do?

1) Keep the big picture in mind.

Although the market did ‘crash’ in 2008, it regained its position in recent years, and the 30% people lost on the whole came back and they made even more money than they had lost. I personally (and a lot of other people do too) that the market is cyclical. We have good times (expansion) and we have bad times (recession). The US economy hasn’t faced a recession that we haven’t been able to overcome. Remember this in the bad times and celebrate in the good times.

2) Rash decisions aren’t normally the best ones.

I’ve actually been tempted recently to sell all my stocks, let the market drop a little more, then buy them all back again. This strategy alludes to trying to time the market. The idea is that by trading stocks/mutual funds at the correct times, you can make a lot of money. However, this just only adds another layer of risk to the equation. Not only are you trying to pick winning stocks, you’re also trying to time the market to maximize your profit and minimize your loss. Although not impossible, this strategy is difficult and should be avoided by novice investors. Warren Buffet (if you don’t know, he’s a legend…wait for it…ary investor) once said, “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.” Once you’ve found quality companies to invest your money with, stick with them, regardless of when the market has a bad day.

3) Diversify – keep those eggs in multiple baskets.

If you’ve found a way to hedge your bets, like by not keeping all of your retirement in say one stock, like Coca-Cola (as one of my co-workers once did!), you’ll be setting yourself up for success. It’ll be rare that your entire portfolio will be down on any given day, and by diversifying, you’ll hopefully end up on top.

4) Good investments are still good investments.

In a down market, it doesn’t make a whole lot of sense to be trading back and forth, when with each trade you’re basically taking on more risk. The secret to being successful with your investments is to invest in good investments. No matter what the market is doing (up or down), a good investment is still where you want your money to be. In theory, a good investment will do less bad than a bad investment in a down market. Pick winners and stick with them.

5) Sell only if it rationally makes sense too.

If the market is going down, you’re probably not the only one losing money. Do you think that Warren Buffet gets nervous and sells all his stock every time the market goes down? The only time you should sell a stock is when you no longer deem it a good investment and believe you could earn a better return for your money elsewhere, not when the market dips a couple of percentage points.

Although it’s hard to sit and watch your investments dwindle in size, the good investors learn that a bad day isn’t necessarily time to sell. There will be good days ahead, and they know that their solid investments will continue to be solid and will earn them a generous return!

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