How to Invest During a Market Crash: 4 Effective Strategies

Investing during a market crash may seem like a fool’s errand, but there are actually a number of advantages to be had.

Your stocks are suddenly worth far less than they were before, and you may be wondering if you should sell or hold on.

You’re not alone. In 2022, 43% of investors are choosing to watch from the sidelines, feeling too nervous to participate in the market. 

As a former financial advisor and energy trader, I’ve seen my fair share of market volatility and have found ways to maneuver in order to protect and even grow a portfolio during these swings.

Read on for our tips on how to invest during a market crash.

Should you invest during a market crash?

Should you invest during a market crash?

It’s a question on the minds of many investors these days: should you invest during a market crash? The answer, unfortunately, is not a simple one. 

On the one hand, some investors may feel like this is a perfect time. They view market crashes as buying opportunities to buy low and get a bargain, believing that the prices of quality stocks will eventually rebound. 

On the other hand, some investors believe that it’s best to stay out of the market during downturns. They worry that the market will continue to drop and they’ll lose even more money.

So, what’s an investor to do?

Ultimately, the answer depends on a variety of factors, including your investment goals, your risk tolerance, your overall financial situation, your personal circumstances, and your ability to stomach volatility. 

Remember that market crashes come with opportunity as well as risk. If you’re prepared for a crash and can handle the ups and downs, then it may be worth investing in this tumultuous time.

How to take advantage of a stock market crash

There are a few things you can do to take advantage of a stock market crash. 

1. Dollar-Cost Average

Dollar-Cost Average

The first is to dollar-cost average your purchases. That means making purchases of a set dollar value at regular intervals, even when the market looks scary. This will help you buy more shares when prices are low and less when prices are high.

2. Looking for Bargain Investments

Looking for Bargain Investments

A market crash creates opportunity. This is a time to buy your stocks or investments at a much lower price than they were before.

But not all stocks will recover, so you must be careful and analyze and choose investments that you think have good long-term prospects. 

3.Focus on Dividends

Focus on Dividends

Another thing you can do is focus on companies that issue dividends. While dividends aren’t guaranteed, and they can change, companies that issue dividends tend to be more mature and their share prices are less volatile.

This can provide a measure of stability in your investment portfolio.

4. Government Bonds

Government Bonds

Finally, government bonds are generally considered one of the safest investments, though they are decidedly unsexy and usually offer meager returns compared to stocks and even other bonds.

If you’re looking for a conservative investment with minimal risk, government bonds may be the way to go.

How to prepare for a stock market crash

In theory, a stock market crash is a great time to buy stocks. Prices are low and there’s an opportunity to buy quality companies at a discount. 



However, in practice, it can be difficult to make the right decisions during a stock market crash. That’s why it’s important to diversify well. A drop in one sector is offset by a rise, or at least stability, in another. 

For example, if you have all your money invested in technology stocks and the market sector crashes, you’re going to lose a lot of money.

But if you have money invested in technology stocks, health care stocks, and consumer staples stocks, you’re going to be a lot safer. Asset allocation is key during stock market crashes.

You don’t want all of your eggs in one basket. So spread your investments across different sectors and asset types.

This will help protect you from wild swings in the stock market and decrease your overall risk.

2.De-Risk Your Portfolio

De-Risk Your Portfolio

Start taking actions to de-risk your portfolio if you really feel that a market crash is imminent. You can do that in several ways: Rotate your investments to less risky sectors (eg. from tech to utilities), sell some equities and buy fixed-income, or sell equities and hold cash. 

What are the best investments during a market crash?

When the stock market takes a dive, it can be a scary time for investors. But don’t panic—there are still opportunities to make smart investments and come out ahead.

No one can predict when the next market crash will happen, but it’s important to be prepared. 

1. Passive Investing With ETFs

Investors are realizing that it is extremely difficult to time the market and know when market crashes are coming. That’s why more people are turning towards passive investing with ETFs. It’s a simple but effective strategy for long-term investing. See this guide on how to invest in ETFs in Canada.

2. Fixed-Income

Bonds are an effective way to de-risk your portfolio during a market crash. It’s possible that fixed income will drop in value during a market crash, but much less than equity holdings will. 

3. Real Estate

Another smart investment to make during a market crash is real estate. Property values can fall during a market crash, so this can be a great time to invest in a new home, REITs, or other property. 

4. Watch Balance Sheets

Look for companies with strong balance sheets, specifically cash flows and dividends. These companies will be in a better position to weather the storm and come out stronger on the other side.

5. Tax-Loss Harvesting

And finally, don’t forget about tax-loss harvesting. This is a smart way to minimize your losses during a market crash and can save you hundreds or even thousands of dollars.

When done correctly, it can minimize or even eliminate the taxes you owe on your investment profits.

How do you protect your investments during a market crash?

One of the smartest things you can do during a market crash is to protect your current investments. Figure out how much money you’ll need in the short-term (1-2 years) and keep that portion of your portfolio hyper-protected.

That they’re in a stable, low-risk investment like a high-yield savings account or a government bond. 

You could also explore other options like exchange-traded funds (ETFs) or robo-advisors. Make sure you’re diversified and that you’re not overinvested in any one position, sector, or asset class.

It can be difficult to protect your investments during a market crash, but it’s not impossible. Here are a few tips to help you minimize the damage:

  1. Stay calm and don’t panic. Losing your cool will only make things worse.
  2. Don’t panic sell your investments during the crash. This will only lock in your losses and you may not be able to buy back in at a lower price. 
  3. Review your portfolio and figure out which investments are most vulnerable. You may want to sell these off and re-balance your portfolio when the market rebounds.
  4. Consider using stop-loss orders to protect your investments. This will automatically sell your stocks if they fall below a certain price point.
  5. Keep some cash on hand in case of an emergency. This will help you avoid selling off your investments at a loss during a market crash.

How do you know if a market crash is coming?

How to Invest in a Market Crash

The best way to protect your portfolio is to be prepared for the next market crash. But how can you tell when one is coming? Unfortunately, there’s no crystal ball for market activity—market crashes can be unpredictable. 

However, there are a few signals you can watch out for. For example, if you see a lot of market volatility, watching the VIX can give you a hint. Additionally, if there’s been a big sell-off, that could be a sign that a crash is imminent. 

You can also keep an eye on indicators like the yield curve, earnings growth and credit spreads. If any of those things are trending downwards, the stock market will likely follow suit. 

A market crash can be a scary time for investors, but if you know what to do, you can come out ahead. Stay informed about what’s happening in the markets and make sure your investments are spread across a variety of asset classes.


How To Invest In A Market Crash

If the market does crash, stay calm and stick to your plan. Selling at the bottom is always a bad idea, so wait for the market to stabilize before making any moves. 

In the meantime, there’s no harm in holding on to some cash so you’re ready to take advantage of opportunities when they arise.

Alternatively, leverage technology and use a robo-advisor to navigate the swing, check out this article next for the top robo-advisors in Canada.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Read about how he quit his 6-figure salary career to travel the world here.

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