Wednesday, October 4

How to beat the storm hitting crypto and US stock markets?

It’s been a difficult start to the year for US stocks. The tech-heavy Nasdaq composite – which was already in correction territory mid-last week tanked further as tech stocks continually dragged it down.

In a further decline, the Dow Jones Industrial Average broke below its 200-day moving average by more than 300 points. A heavy slump in the S&P 500 index resulted in its worst weekly performance since 2020.

Consequently, the recent risk-off attitude and selling pressure in the worldwide crypto market showed no signs of abating, with Bitcoin falling 4% and Ether dropping 7% in late afternoon U.S. trading after a brutal week.

In terms of market value, Bitcoin saw a low of $34K on Saturday, a drop of more than 50% from its all-time high in November of last year.

Due to an accelerating inflation rate, investors are becoming increasingly nervous and pulling out of riskier financial assets in mass on credible reports that the Federal Reserve will raise interest rates even more aggressively than economists expect this year.

The declines in Ether — the second-largest token — and in newer coins have outpaced Bitcoin’s decline this week as traders reacted to hawkish signals from the Fed and fresh regulatory hints from the White House, triggering investors to reduce exposure on Crypto and growth stocks in lieu of cash and its equivalents.

What you should do

  • It is easy to feel tempted to pull money out of the stock market whenever financial markets decline in this manner and your portfolio value decreases dramatically. I can understand that, but it’s probably not the best approach. Consider asking, “What should I not do?” instead.
  • You don’t need to panic. It is common for people to panic sell when stocks plummet and the value of their portfolios drops dramatically.
  • During a bear market, playing the long game is crucial. Rather than withdrawing your investments when things start to dip, consider what the long-term consequences will be if you ride out the bear market.
  • Therefore, you should be aware of your risk tolerance and how price fluctuations—or volatility—will affect you before investing.
  • A more effective way to mitigate market risk is to diversify your portfolio by holding a range of investments such as real estate, high yield saving accounts, including those with a low correlation to the stock or Crypto market.
  • Investing long-term recognizes that the market and economy will eventually recover, and long-term investors should prepare for such a rebound. In 2008, the U.S financial market plunged, causing many investors to sell their investments.
  • The market ultimately recovered to its former levels and even exceeded them after bottoming in March 2009. Long-term investors who remained in the market over the years eventually recovered and had a better return than panic sellers.
  • Add diversified investments to your portfolio once the market returns to normal. Investing in a variety of stocks, bonds, cash, and other assets will protect you when the market takes a turn for the worse.
  • Don’t wait for the market to trend downward to start diversifying, and always invest in diversified options before the market starts to trend downward. As a result, you have the best chance of benefiting from growth across a variety of markets and reducing the possibility of being negatively impacted by declining markets.

Additionally, you should not be afraid of seeing drawdowns in your portfolio. It’s true that too many losses are just plain detestable, but sometimes it’s an opportunity waiting to be seized.

Therefore, when it comes to your own portfolio, you should hesitate before selling financial assets that have lost money. If your original analysis is valid, it may be time to hold steady, or even buy more as Warren Buffet, a well-known investor, says, that when there is blood on the street, you should buy.