The Nasdaq dropped another 2.6 percent on Jan. 25 and added to a YTD decline of 13.73 percent. The Dow and S&P 500 are losing too. It’s nerve-wracking to watch your investments plummet during a looming stock market crash. However, if there’s one thing long-term investors know, it’s that you only lose when you sell. With the market down, some investors wonder if now is the time to buy.
Here are some options for how to handle the current market correction. Also, we’ll share some stocks to consider if you’re going to take the plunge and buy while indices are down.
Investors have options during a stock market crash.
Depending on the security, selling isn’t always a smart move during a crash. You could miss out on growth when the market returns to higher levels. Here are some options for what to do instead.
Investors should consider buying stocks.
You can buy stocks that show potential despite the current correction. Sometimes, a market crash is just a discount for stocks. This isn’t always the case, but it can potentially lead to amplified growth.
You can also practice dollar-cost averaging, or buying stocks you already own at lower prices than you originally bought them at. In the right circumstances, this reduces your cost basis and makes it easier to return to the green down the line.
Alternatively, you could prioritize dividend stocks to retain passive income during a downturn. Finally, if you’re going to buy, consider rotating sectors based on what’s thriving versus what isn't. Beware that sector rotation is an industry-wide way to time the market and holds greater risk than long-term positions.
Buying bonds guarantees repayment at a premium.
Not all investors are going to dabble in bond buying. However, this type of asset does guarantee repayment at a premium—something that stocks can’t promise.
Some investors will choose to do nothing.
One way to get through the market crash is to wait it out while you do nothing. If you’re near retirement, you might not have this luxury. Ideally, people close to retirement hold more conservative investments that aren’t impacted as much by market downturns.
Tax-loss harvest is another option for investors.
If you’re going to sell at a loss, do so strategically. Use it as a way to cut down your tax bill. The IRS lets investors write off up to $3,000 in capital losses annually. This can reduce your taxable income and taxes owed.
What stocks should be on your watchlist during the market correction?
Big tech stocks like Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) are expected to recover their losses. Some experts say that buying at a steep discount will only increase long-term returns.
Value stocks like Bank of America (NYSE:BAC) and Teva Pharmaceutical Industries (NYSE:TEVA) have charts that scream value. Meanwhile, biotech companies like Vertex Pharmaceuticals (NASDAQ:VRTX) and Moderna (NASDAQ:MRNA) will likely keep growing fundamentally.
Meanwhile, high-dividend stocks like BlackRock Inc. (NYSE:BLK) could produce earnings for investors during the downturn.
Tread carefully in a stock market downturn and trust your investing strategy—whatever it involves.