Introduction:

The market works in a cyclic nature. You are not alone if you have ever wondered why the share market is down and what you should do about it. The market experiences frequent ups and downs. However, it is essential to understand that market ups and downs are natural and bound to happen and that this, too, shall pass. Even during the most challenging times, some strategies can be employed to navigate market volatility.

This guide will help you understand why the market can spiral downward and what you can do to protect your money during this time.

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Why does the share market witness a downturn?

The share market experiences downturns due to factors such as supply and demand. When more people want to buy a stock, its demand rises. This causes the stock price to increase. Conversely, if more people want to sell a stock, there is an excess supply. This leads to a decrease in the price. When prices start falling, the market may experience a downturn.

Several factors can impact the demand and supply of stocks. These include political events, natural disasters, inflation, global financial crises, and pandemics.

What to do when the share market is down?

Here are the steps you can take when the market is down:

• Stay calm and do not panic

Staying calm and avoiding panic is crucial when facing a market downturn. It is essential to remember that a paper loss only becomes a real loss if you sell your stock at a lower price. Holding onto your investments and allowing time to pass can help you eventually recover from market fluctuations. Making hasty, panic-driven decisions can lead to unnecessary losses. Keeping a rational mindset and a long-term perspective is key to successful investing.

• Ignore the noise

There will be a lot of chatter and opinions from various sources, including friends and peers, which might lead you to make impulsive decisions. However, it is best to tune out the noise. In times of market crash, one of the wisest strategies is to do nothing and ride out the market volatility. Making decisions based on sound research and a calm assessment of your investment goals is far more beneficial than succumbing to the influence of market buzz. Make sure to adopt a patient and steady approach to earn better returns in the long run.

• Buy low

A share market crash can present a unique opportunity for investors. When the market is down, stock prices often plummet. This enables you to invest shares at a significant discount. Investing during a market crash allows you to purchase more shares than usual. You get to leverage these lower prices to your advantage later. When the market eventually recovers, the value of these discounted shares can potentially yield substantial profits.

However, proceeding cautiously and researching thoroughly before investing in discounted shares is crucial. Not all companies can withstand a market crash; some may struggle to recover. Hence, carefully analyze the financial health, market position, and long-term potential of the companies you plan to invest in. It can also help to diversify your investments and choose stocks with a strong track record.

• Balance your portfolio with short- and long-term investments

Maintaining a balanced portfolio of short-term and long-term investments can be a prudent strategy in market downturns. Short-term investments are typically more sensitive to market fluctuations. On the other hand, long-term investments have the potential to ride out short-term fluctuations. Long-term investments also offer advantages such as the power of compounding, and they often come with tax benefits. Adopting a long-term perspective can reduce the impact of market downturns on your portfolio and maximise your returns in the long run.

Balancing short-term gains with long-term investments' stability and growth potential can provide you with a cushion against market uncertainties. It is essential to align your investment choices with your financial goals and risk tolerance and ensure a diversified portfolio with a well-balanced mix of short- and long-term investments.

To sum it up

A market downturn is a period of uncertainty. But it is also a time of opportunity. Therefore, be vigilant and capitalize on discounted shares to earn profits when the market eventually rebounds. It is also essential to conduct thorough research, create a diversified portfolio and make wise investment choices without succumbing to panic and fear.

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