What should I do if the stock market crashes in 2023 or 2024?

Guided by several Foolish investing principles, our writer explains what they’d do if the stock market crashed in the next six months.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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Even during the best of economic environments, investors can never rule out an unexpected stock market crash. After all, major catastrophic events that nobody saw coming are often the cause.

Since the beginning of 2023, the FTSE 100 has showed little upward momentum, trading broadly sideways. With the current economic landscape shrouded in uncertainty and inflation rates remaining stubbornly high, the looming possibility of a market crash certainly can’t be ruled out.

What’s more, worrying signs came from the US at the end of last month after the S&P 500 briefly entered into correction territory. This development sparked concerns among some investors, raising apprehensions about a potential wider sell-off around the world.

To make matters worse, a handful of prominent investors and analysts have been predicting that a crash is imminent. So with that in mind, here’s what I’d do if the stock market crashes in 2023 or 2024.

Staying calm and avoiding impulsive decisions

Enduring a market crash is something that almost all investors will have to face at some point in their lifetime. But this doesn’t mean it’s a straightforward experience. The sudden plummet in share prices across the board is a scary occurrence even for the most seasoned of investors.

So, to avoid any emotional decision making caused by fear or panic, I’d make every effort to keep calm and avoid impulsive decisions. Emotional reactions will only cloud my judgment and result in decisions that are not aligned with my long-term financial goals.

Keeping money in the stock market

In particular, I’d refuse to get caught up in any panic selling. In any case, pulling money out of the stock market during market downturns usually causes more harm than good in the long term. This is due to market timing risk.

Timing the market is when an investors attempts to buy or sell stocks based on predictions relating to future share price movements. And it’s notoriously difficult.

That said, there are instances of legendary investors predicting catastrophic events such as the 2008 financial crash. For example, The Big Short‘s Michael Burry springs to mind. But the reality is that predicting the optimal time to exit the market before a downturn and re-enter before an upturn is extremely challenging, even for experienced investors. That’s why I won’t be bothering.

Adopting a Foolish investment philosophy

Instead, I’d embrace a long-term investment mindset, encapsulated by the Foolish investing philosophy. By thinking in this way, it doesn’t actually matter to me whether the stock market crashes or rallies in the next six months. This is because the long-term mindset will help me to weather any near-term volatility safe in the knowledge that markets tend to recover over extended periods.

In fact, I’d view any significant market downturn as a chance to acquire high-quality stocks at heavily discounted prices. By strategically buying shares during a crash, I could even position myself for some substantial gains when the market eventually rebounds.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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