Stock market crash: how should you react?

When stock prices are in free fall, the first reaction is often panic. However, there are simple methods to approach these destabilizing periods with greater composure. How should you react in the event of a stock market crisis, and how can you prepare to best protect your assets? myLIFE offers some ideas for reflection.

The geopolitical environment and economic changes can influence the evolution of stock market values, both upwards and downwards. Certain situations can even lead to global financial and economic crises: the bursting of the Internet bubble in the 2000s, the subprime crisis in 2008, or the COVID-19 epidemic in 2020. More recently, armed conflicts or trade tensions with the United States over tariffs have also had significant repercussions on financial markets.

As an investor, you know that stock market investments carry risks and that the movement of prices is unpredictable. So how should you react to falling market values, and what best practices should you adopt?

Stay calm and analyse the situation

The stock market indices are plunging. The value of your investments is melting before your eyes. Stay calm and don’t panic! The first rule is not to let your emotions take over and to keep your cool. It may not be easy, but it is absolutely essential to avoid falling prey to your cognitive biases and making irrational decisions that could make the situation worse.

By taking the time to observe and understand the situation, you will be better able to assess your portfolio’s level of exposure and what actions you should (or should not) take.

Stop checking your portfolio every hour, or even every 10 minutes, and take a step back from the media and social networks. The flow of information will only increase your stress. Take a break and assess the situation as objectively as possible: what are the causes of the drop in prices (isolated event, structural crisis)? Are your investments directly affected? Are they sufficiently diversified? Are the companies you have invested in robust? Is the situation irreversible? What is your investment horizon (short term, medium term, long term)? Etc.

By taking the time to observe and understand the situation, you will be better able to assess your portfolio’s level of exposure and what actions you should (or should not) take.

Do not rush to sell

Do not make impulsive decisions. The trap is to withdraw your capital from the stock market at the worst moment on a whim and turn a potential temporary loss into a real loss.

Sometimes, not reacting and letting the storm pass is the best solution. This is especially true when your investment is long-term and your portfolio is sufficiently diversified. The evolution of financial markets is cyclical with longer or shorter phases. Generally, after a sharp drop in prices, markets recover and can sometimes even experience strong rebounds. The key is not to miss these sessions of significant gains. So take the time to calmly study the situation before acting.

It is advisable to invest regularly with a long-term investment horizon in order to smooth out your exposure to risks. Temporary declines are inevitable and a good investment strategy takes market movements into account.

Stay true to your investment strategy

When the value of one of your investments collapses, stay the course and try to stick to the investment plan you set at the beginning, preferably with the help of an expert in the field. If your goals have not changed and you regularly invest a fixed amount of money, do not stop your payments and continue to invest according to your investment horizon.

The stock market is known for being associated with volatility. Fluctuations in financial markets, both upward and downward, can be frequent. However, historically, the long-term trend is more upward. That’s why it is advisable to invest regularly with a long-term investment horizon in order to smooth out your exposure to risks. Temporary declines are inevitable and a good investment strategy takes market movements into account.

Rebalance your portfolio if necessary

In times of crisis, it is natural to want to reduce your exposure in order to limit potential losses. However, as previously explained, before taking action, take the time to analyse the situation rationally: have your financial objectives changed? Are your investments concentrated in a single sector or geographic area? If you feel your portfolio needs to be rebalanced, you can move towards more conservative investments: savings accounts, government bonds, euro funds, etc. Depending on your profile, you may also consider real estate or safe haven assets like gold. Before acting, it is always recommended to seek guidance from professionals.

=> Note that market downturns can also be seen as opportunities. It may be a chance to buy stocks you wanted to acquire at a lower price. However, make sure that the companies you are targeting are solid and always invest gradually.

How can you best prepare for a stock market crisis?

Prevention is better than cure. When you start investing, it makes sense to follow a few common-sense rules in order to minimize as much as possible the impact of a potential drop in the value of your investments.

> Clearly define your investor profile

Before implementing a strategy, you need to define your investor profile. This will depend on your return objectives, your risk aversion, your investment horizon, your understanding of financial instruments, and your financial means. This profile also includes your preferences regarding sustainability. Your asset portfolio should always be in line with your investor profile.

> Diversify your investments

It’s well known that you shouldn’t put all your eggs in one basket. Depending on your profile, intelligently allocate your investments between secure products and others that are riskier (see the investment pyramid). In short, diversify!

Choose different asset classes (stocks, bonds, cash, real estate, gold, etc.), diversify across business sectors, but also the geographical areas in which you invest. Since each investment is affected differently by market movements, this allocation will reduce the overall volatility of your portfolio and spread the risks in the event of a sudden drop in prices.

Your portfolio should be structured according to your investment horizon. You will not choose the same proportion of stocks if your investment period is planned for 5 or 20 years.

> Invest for the long term and be consistent

Your portfolio should be structured according to your investment horizon. You will not choose the same proportion of stocks if your investment period is planned for 5 or 20 years. It will be easier to absorb the effects of a sharp drop in stock market indices over a long period than over a short one. Since it is unrealistic to predict market movements, it is advisable to make regular contributions rather than investing a large sum of money all at once. By investing continuously, regardless of the market level (high or low prices), you will smooth out risks and can offset, at least in part, any potential losses.

> Building up a precautionary savings

Before investing in financial markets, make sure your precautionary savings are sufficient. Knowing that you will have access to this reserve of money in case of unexpected events will help you get through periods of crisis more calmly. This will prevent you from having to sell your investments at a loss to cover urgent liquidity needs. You may also, if necessary, use part of this capital to acquire shares at low prices and take advantage of potential opportunities.

> Staying informed and vigilant

Finally, in times of crisis, a solid financial education will help you remain calm and make decisions suited to your profile and objectives. Always remember to stay vigilant: beware of fads or promises of profitable, quick, and risk-free investments. Unfortunately, scams are not uncommon and can sometimes take unsuspected forms.

As an investor, you know that you should not give in to panic when the stock market falls. However, it is normal to feel worried, especially when you are alone facing plummeting charts. To help you keep a cool head, don’t hesitate to contact your financial advisor or a competent expert. Together, you can understand the situation objectively, review your investment strategy, and adjust it if necessary. This way, you will avoid making decisions based on emotion.