Panicked about a market crash? Let me ease your concerns

Understandably, many people are freaking out about the global economy and, by extension, the sharemarket right now. So much so that it’s just about the only thing people are asking me about.

While being across what’s happening is important for any investor, hitting the refresh button every 10 minutes and obsessively tracking every rise and dip is a pretty good way to make yourself more panicked and drive yourself crazy.

As any seasoned investor will tell you, no matter how unprecedented this moment might feel, it’s actually not at all. If it’s your first rodeo, however, knowing how to keep calm and carry on might be unclear.

With that in mind, here are four practical and easy steps to offer some clarity and ease your worries a bit.

Stop checking your investments

I understand that this might sound like strange advice from someone who always says you need to know where your money is going and how it’s working for you, so let me explain.

Investing is a long-term game, and it only works when you give it time. For the sharemarket broadly, that time is best measured in years and decades. This is why it’s recommended that your emergency savings, as well as any other money you may need to access within a relatively short period of time, isn’t invested in this way.

Humans tend to like predictability, stability and rationality and the sharemarket is in many ways the opposite of that.

At present, the market is doing just what the market does. Yes, investors are on edge and feeling uncertainty and volatility are the new normal, but it is also moving in the same cycle it always has and always will.

It’s estimated that there will be seven market corrections (where the sharemarket drops by 10 to 20 per cent from its most recent peak) within the average lifetime.

While it’s true that the rollercoaster ride might not feel good right now, this is just the part where you take a deep breath, grip the handlebars and trust the process. That means not obsessively checking your balances or being influenced by outside voices that aren’t market experts.

Understand what’s driving your worry

Believe it or not, feeling anxious or spooked when you look at what the global economy is doing now is a very normal response. That’s because our brains aren’t built in a way that’s naturally conducive to the way the sharemarket operates. Humans tend to like predictability, stability and rationality and the market is in many ways the opposite of that.

But just because you feel anxious or worried doesn’t mean you should act on those feelings. This might sound harsh, but it’s worth remembering that feelings aren’t always facts.

Those feelings causing you to freak out likely stem from loss aversion. This is a fun quirk of our brains that makes the psychological pain of losing hit a person with twice the intensity of the pleasure we feel when we win something.

For example, if you were to find $100 on the street, you’d no doubt have a spring in your step and feel chuffed. But if $100 fell out of your pocket, the negative feelings – upset, annoyance, stress – would hit you twice as hard.

Loss aversion is just our brain’s way of trying to keep us safe, and understanding that’s what is happening helps us override it. So if you’re looking at your investment portfolio (which you shouldn’t be, if you’re following step one) and the yuck feelings kick in because on paper it looks as though you’ve lost something, take a deep breath and remember that is not the case.

Reframe your fear

Let’s say you decide to sell your house and an expert values it at $1 million. If someone came along and said they were going to pay you only $750,000, chances are you’d say no and wait until the right offer came along because you know what your asset is worth.

When we log onto our share accounts at the moment, most of us see one thing only – the decline in value. But here’s a different way of looking at it. Yes, the dollar amount being displayed on your screen has changed, but the number of shares you own is still the same.

Even though those shares that were worth $10 a couple of months ago might be worth only $6 today, it’s worth remembering that if they were once worth $10, history tells us there’s a good chance that by holding tight, they’ll be worth that again in the future.

What’s happening now is just one chapter, and the good thing about the sharemarket is that while it can be volatile in the short term, when it comes to long-term patterns, there are many, and it is actually pretty predictable.

Stick to the plan

As I’ve said, the sharemarket is a long-term game. That means that if you’re investing in it, chances are you’ve got some sort of plan around what you’re hoping to achieve. Whether it’s highly structured and mapped out to every year or much looser, you’ve clearly got ideas about the kind of future you want.

Coming back to this plan and committing to it is essential to get through these periods.

However, you also need to remember what’s happened in the past. In March 2020, when the first major wave of COVID-19 hit and countries around the world began closing down, the market crashed by 34 per cent. At the time, it felt beyond terrifying. By 2021, the market had returned by 17.1 per cent, and if you’d invested $10,000 back then, today it would now be worth about $30,000.

In 2008, when the global financial crisis struck, the market dropped even further – by roughly 40 per cent. By 2009, though, it had bounced back with a gain of 39.6 per cent.

To date, there has never been a single period in history where a bear market had not made its way back to being a bull market. So take a deep breath, and try to trust the process.

Victoria Devine is an award-winning retired financial adviser, a bestselling author and host of Australia’s No.1 finance podcast, She’s on the Money. She is also founder and director of Zella Money.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

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