Young & Invested: What to do when the market crashes
Worried about your investment portfolio? Here’s what you can do next.
Welcome to my column, Young & Invested where I discuss personal finance and investing for Gen Z and Millennials. This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try to build wealth. Tune in every Thursday for the latest edition.
Edition 11
The last week of news headlines have been tiresome to say the least.
Admittedly I haven’t checked my portfolio once since then – I’m not sure if it’s out of fear or discipline. Some may say this makes me an unengaged investor. But I’ve seen a few market downturns in my five years of investing and acted irrationally in almost every circumstance. This time I’m aiming to get it right.
Erratic market movements – especially large declines, often bring out investor’s worst habits. The emotions associated with losing money can cause us to deviate from actions that are in our long-term best interest. This is especially the case if you don’t have structure to govern your decision making.
So, what can we do to make sense of current market conditions? Sometimes the answer is nothing.
What is happening to markets right now?
President Donald Trump’s tariff announcement rattled global markets after the measures were more severe than expected in magnitude and scope.
Based on US market movements overnight, the Nasdaq Composite has entered a bear market, falling over 20%, whilst the S&P 500 appears to be inching closer to similar territory. On local ground, the ASX 200 has fallen almost 15% since it’s high in February.
Morningstar’s Market Strategist Lochlan Halloway believes the direct effect of tariffs on the Australian economy should be limited. In 2023, the US was Australia’s sixth-largest goods export market accounting for ~4% of total goods exports.
Figure 1: US Accounts for a Small Fraction of Australia’s Total Goods Exports.
Holloway acknowledges that although localised pain may be present, the direct impact on GDP is expected to be modest in relation to the overall economy. On the other hand, the indirect effect of tariffs looks more serious. Although the US is not a big trading partner, as the world’s largest economy, it accounts for ~25% of global GDP. If maintained, we think these tariffs could cause serious damage to the US economy.
Bear market fears
What we are experiencing is mass speculation, with investors exiting positions amidst sensationalist headlines touting an economic downturn in the US and its effects on the global economy.
Many of us have been subjected to media commentary signalling a descent into a “bear market”, rather than a correction as initially anticipated. The term bear market generally occurs when securities experience a decline of over 20%, whilst a “correction” refers to a decline of over 10% from a recent peak.
The last bear market we saw in Australia was during the Covid-19 pandemic, in which the ASX fell over 30% in a few weeks. For young investors, this is the only bear market most of us remember. However, it is important to note that it was also the shortest bear market on record and might not have psychologically prepared us for a more extended depression.
When will this end?
The seasoned investor has seen it all, the GFC, Brexit, Covid and now Trump’s tariff tirade. However, if you’re new to the share market, recent developments are understandably concerning.
Luckily, history shows that long term investors have weathered a series of seemingly destabilising events to ultimately come out on top. The chart below from Owen Analytics visualises a series of market-moving global events and the nominal returns of Australian and US shares. Despite a constant stream of crises, markets demonstrate an overall upwards trend.
Figure 2: 125 ‘reasons not to invest’. Source: Owen Analytics. 2025.
The truth is, neither me, your neighbour or even Warren Buffett can predict exactly how this will eventuate, but there are best practises we can initiate to avoid poor investor behaviour that may lead to returns erosion.
How to invest in a downturn?
Regular and disciplined investments make sense
Contrary to popular opinion, the smartest thing you can do right now may just be nothing.
Whilst most speculators are panic selling or diverting funds, it often pays to stay invested for the long term. Not every sell off is an opportunity. Contextually, equities are still offloading from the highs in 2024, and most are still expensive by historical standards.
We all want winners in our portfolio, but we can’t win all the time. As Warren Buffett warned, “you pay a very high price in the stock market for a cheery consensus.” I believe we are currently seeing the consequences of the last few years of cheery consensus.
For younger investors, sticking to the dollar cost averaging (“DCA”) method or simply “staying the course” might be the best option. DCA’ing a fixed amount means larger unit purchasing power during downturns and a lower number of units when prices are high. This consistency can pay off over the long-term as timing the market is very difficult to consistently get right.
For those who have auto-invest options set, an arbitrary drop in markets shouldn’t deter you from continuing to pursue your investment goals.
Find opportunities outside of the bargain bin
Most investors (including myself) are feeling the pain right now.
Whilst losses are only realised when sold, it can still be disconcerting to see your funds deteriorate on paper. The fear of continued losses might mean you’re less inclined to divert future funds into the market.
To those who might be anxious I present Baron Rothschild, member of the Rothschild banking family, who is credited for the phrase “buy when there is blood in the streets, even if the blood is your own.” As intense as that sounds, there is a point to be made.
What Rothschild touted is contrarian investing at its core – an investment strategy that is characterised by making decisions that are in contrast to the prevailing sentiment at the time. A contrarian considers crowd behaviour among investors (such as the current mass selldown) to determine if there is exploitable mispricing in securities markets.
Besides the falling markets in 2022, I have never experienced a prolonged bear market during my five years of investing. Whilst I’m not a contrarian investor at heart, I can recognise that herd mentality brings opportunity, especially in times like this.
It is important to note that this is not a resounding call to dig through the bargain bin. Instead, it is a call not to be afraid of continuing business as usual. That is a contrarian move when everyone else is selling. Not everything is a good buy in a downturn, review your goals and underlying strategy and be intentional in your decisions.
What you should avoid
Anyone who tells you that they can predict the bottom is purely speculating. Here are some things you should avoid:
- Trying to time the bottom: Whilst the entire market appears to be dropping in value, the odds of timing an investment at the bottom of a downturn are slim. Investors often see it as an opportunity to buy low and sell high, but it is important to note that a swift recovery might not be in sight for a while or can happen before you can act.
- Panic selling: By the time market headlines have you panicking, it is too late to exit a position. Jumping in with the herd will only solidify losses. If you have conviction in the long-term prospects of your portfolio, there is no immediate need to follow the herd.
- Investing emergency funds: With economic uncertainty sending global shock waves, it is important to note that the damage from an economic downturn can extend further than the share market. Larger recessions can materialise in periods with increased inflation, higher cost of living and job loss. It is important that you only invest what you can afford to lose. Buying now can be a good opportunity but only if you have the spare capital to allow you to hold on for the long-term.
Keep calm and stop checking your portfolio
This is a phrase I’ve had to repeat to myself many a time and certainly during events like these.
The chart below shows every market correction over 10% since 1964. The reality is the global market has seen its fair share of downturns and has managed to recover over various periods.
Now is an important time to slow down decision making when confronted with irrational thoughts. Fear and greed may control our emotions, but they don’t have to control our investing behaviour. As for me, I will continue to avoid checking my account and letting uing-invest do its thing.
Figure 3: Every market correction over 10% since 1964. S&P 500. Source: Piper Sandler. 2024.
