Here's What To Do With Your Money When the Market Crashes, According to a Money Expert
A market crash puts long-term savings under a microscope. For many people, that means deciding whether to stick with a plan or change course.
Dean Mahmoud, CEO of EcoGen America, said that sense of urgency is often the real risk during a downturn.
"The quickest way to lose value in your business or investments is through reactive decision-making," Mahmoud said.
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What To Do First When Markets Crash
Mahmoud said one of the first mistakes people make when markets fall quickly is checking their account balances too often. Watching losses pile up in real time can push people toward decisions they would not normally make, even when their long-term plan has not changed.
"The most damaging decision that everyday investors make is to constantly check their account balances when there is a crash, as this behavior creates an emotional urgency to stop the pain with a sale," he said.
He said keeping emergency savings separate from long-term investments can take some of that pressure off. When bills and short-term expenses are covered, market swings feel less personal.
"I recommend that all investors maintain a clear distinction between their emergency funds and long-term investment accounts so that no matter what happens in the markets, it will never affect your ability to pay your bills," Mahmoud said.
Jack Gunn, a certified financial planner and wealth advisor at Ullmann Wealth Partners, said that stepping away from the noise can also help.
"During a market crash, investors should turn off the TV, shut down the computer, put down the phone and take a breath," Gunn said.
What Not To Do During a Downturn
Mahmoud said selling investments just to stop the discomfort of watching losses often creates a bigger problem.
"I think the best thing to do during a market crash is to simply avoid doing anything, as it's usually better than selling in panic, which will lock in temporary losses," he said.
Gunn said fear can also grow when people lean on advice from friends or family who are not familiar with their full financial picture.
"One of the worst things people can do during a downturn is take advice from family or friends who are not intimately aware of the investor's situation," Gunn said.
How Cash Fits Into a Market Crash
Cash tends to matter most when markets are under stress. Mahmoud said having enough cash on hand can prevent investors from selling assets at the wrong time and give them more flexibility later.
"Having sufficient amounts of cash on hand enables you to be a discretionary buyer during low periods and helps you capitalize on the historically certain recoveries that follow each downturn," he said.
Gunn described cash and lower-risk investments as a stabilizing force during volatile periods.
"Adequate cash and lower-risk investments function like a financial airbag," Gunn said.
Why Advice Differs for Younger Investors and Retirees
Mahmoud said time horizon shapes how people should think about downturns.
"Younger investors should look at a 20% decline in the market as an opportunity to purchase investments instead of a financial crisis, as they have many years for those investments to compound," he said.
For retirees, the situation is different. Mahmoud said people who rely on their portfolios for income need to focus on keeping enough cash available so they are not forced to sell during market lows.
"Retirees should approach this differently by having enough cash to fund 24 months of living expenses without selling depressed assets," he said.
Gunn said some retirees may hold even more cash or lower-risk assets, depending on their needs, to give their investments time to recover.
The Takeaway
Market crashes are part of investing. Panic decisions do more harm than the downturn itself.
Mahmoud said volatility does not mean a plan has failed. For many people, the hardest part of a market crash is accepting that patience, not action, is doing the real work.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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