What to do if the Stock Market Crashes - Without Losing Money! *According to Statistics*

One of the things I haven’t really covered yet in my videos is the risks of investing and how to recover from a market crash, especially now with stocks at their all time highs. But is it possible to time the market? And what’s the best time to invest? Well, according to statistics, doing THIS is what generates the highest profits. Thanks for watching! Feel free to add me on Snapchat/Instagram: GPStephan

Here’s the stock market timing game!

If you expose your money to any type of market, you expose your money to risk - it’s unavoidable. But markets are cyclical and there will be a time when the markets go down and you see some losses.. It’s totally normal. That lends the question - since the markets continuously hit all time highs, is it a good time to sell and then wait for a crash? Statistically, it’s shown that market timing rarely ever works - it’s impossible to know exactly when the market will crash and when to buy back in. Hypothetically if this is possible and you can do it consistently, great - but the chances of doing this consistently and accurately rarely ever happens, and it’s shown that time in the market yields higher average returns than timing the market.

Studies by Brad Barber and Terrance Odean find that individual investors experience reduced returns with their stock trading accounts, with increased active trading a key reason in lowering returns. Examining 66,465 US household trading accounts over the 1991 – 1996 period, Barber and Odean find that the average household account earned an annual return of 16.4% over the period, compared to the 17.9% market return. Those households which traded most earned an annual return of 11.4%.

They’ve also determined less than 1% of households were able to reliably predict market cycles between 1992-2006.

I’m personally against market timing because no one truly knows when the next crash could be. If you pull out now, you could miss a few more years of gains. If you sell now and it crashes, how do you know when the bottom hits and when to buy back in? There have been numerous studies that show that the more you tinker with your investments, the higher the probability of achieving lower returns than if you had just stuck it out and held on to your investment.

Now speaking of risk and all-time highs in the market, what about a large upfront lump sum investment NOW, or slowly putting it in the market over time? Or waiting until the market is down, and then investing a lump sum?

Charles Shchwab ran the numbers from 1993-2012 for each investment strategy.

If you start with $2000 per year available at the beginning of each year, and bought at the YTD low every year, this resulted in $87,004.

If you just invest immediately as soon as you have it, you’d have $81,650.

If you invested $2000 equally every month over the course of the year, you’d have $79,510

If you had bad timing and bought at the YTD high, you’d have $72,487.

And if you had cash investments, you’d be left with $51,291.

The study concludes that the most reliable investment method has always been to buy immediately, and hold. Do not try to time the markets.

So how do you deal with risks and the possibility of losing money? First, don’t invest money you will for sure need in the next 2-5 years. For all other investments, have a long term outlook - don’t be too short sighted to panic sell or try to time the market as soon as it’s down. Instead, you should see this as a long term 10-20 year play.

According to research conducted by Charles Schwab Company in 2012, between 1926 and 2011, a 20-year holding period never produced a negative result!!

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