How to survive a market crash

When is the market crash coming? What stocks should I buy? How can I time the market?

No one likes uncertainty or watching their savings plunge, and too often we react to volatility in ways that are detrimental to our financial health (like market timing).

• Today we help you cope with market volatility.
• We cover the most important asset class you can easily invest in today.
• And who should never tinker with their portfolio.

Strong emotional reactions to losses can cloud our judgment, and things are pretty volatile these days. Inflation, shrinkflation, employment, and a rise in the cost of living can set us up for a vicious cycle of financial stress.

What can you do? How can we prevent making costly mistakes when emotionally charged?

I asked Dan Ariely, Chief Behavioral Economist at Qapital, for financial help.

His advice may surprise you.

(This transcription has been edited to remove all the ummms and ahhhs because they are annoying)

Kerry: The stock market moves a lot. It’s really uncomfortable when we see our retirement savings take a plunge. I get a lot of e-mail from readers who want my advice on timing the market — they want to buy the dip. I tell them I don’t know the dip. I’m not clairvoyant, so it’s a struggle to explain this. Should people even be looking at their portfolios right now?

Dan Ariely: No. No. There was a study by Fidelity a few years ago, and they found that the people who did the best long-term investing are people who died, right? Because they did not do anything in their portfolio. The reality is if you’re trying to time the market, you can’t be smarter than everybody else — it just doesn’t work. So my sense is the best strategy for most people, so in the stock market, in general, some generalization.

Dan Ariely: There are people who are experts, and the people who are experts should go ahead, and time the market, and do what they want. Then there are people like me, who basically say, “I’m just an average Joe. I don’t know anything more than other people. I don’t have a unique perspective,” and for me, it’s kind of, I want some money in cash in case something bad happens, and the rest of it, I have no idea. I’ll put it in the stock market, and I will not watch because watching is just painful. Why do I want this pain, right? I’m not going to make any decision. Then there’s the middle category — so we said the ignorant people, right? The people who recognize that they don’t have any unique value or insight into the market, and we should do nothing, and we shouldn’t watch.

Dan Ariely: Then there are the experts, right? Some really amazing people, George Soros kind of people who know a lot — they should go ahead and do everything. Then there’s a second category, and the second category is the people who think they know, but they don’t really know. Those are the dangerous people, right? They’re the dangerous people because they feel that they know, and they try to time the market, and they do day trading, and they do all kinds of things. Those people really belong in the don’t-do-anything category. They just don’t see it.

Dan Ariely: I would say for most of us, if you ask me what’s the best asset class to invest in right now: stock, bond, real estate, duh-duh-duh, I would say human capital. The most assets that yields revenue for any of us, for any normal people, right? It’s us. We’re going to get more value out of our own skill, and intelligence, and knowledge, and so on, then dividends from the stock market, and I think we need to invest in that asset. It’s a time to go back and invest in our ability to be productive in the workplace rather than speculate about timing the market.

To see this whole amazing interview, check out How to break bad financial habits with Fintech. You’ll learn so much, promise.