Stock Market Crash? What to Do and How to Prepare for An Eventual Crash

Has the stock market crashed, and should we be worried?

Singapore’s Straits Times Index (STI) is not immune to global macroeconomic pressures. It can experience steep, sudden declines, often triggered by events like U.S. interest rate adjustments, geopolitical instability, or economic slowdowns in key trading partners. These factors can create uncertainty and impact investor sentiment in Singapore.

It's easy to feel overwhelmed by market volatility. Media reports and short-term price fluctuations can make every dip seem like a crash. However, it's important to distinguish between normal market corrections and a true crash.

This article aims to provide Singaporean investors with clarity during these times, offering practical steps to navigate market volatility and maintain a long-term investment perspective. With enough guidance, you will also have a better understanding of where to put your money before the market even crashes

» Read more: Where can you put your money during a recession?

What is a stock market crash, and what happens when it crashes?

A stock market crash is characterised by a sudden and severe drop in stock prices, often exceeding 20%, occurring over a short period. This sharp decline is typically fueled by widespread panic selling as investors rush to exit their positions, exacerbating the downward spiral.

While global market indices like the S&P 500 often set the overall tone, Singaporean investors can experience a localized impact. This is due to their exposure to STI stocks, Singapore REITs, and other domestic market factors, which may amplify or mitigate the effects of a global downturn.

However, it's important to remember that market downturns are typically short-term in nature and are often followed by recovery phases. As emphasised by financial analysis, market fluctuations are normal, and a long-term perspective is crucial for investment success.

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What should you do when the stock market crashes?

Market downturns can be unsettling, but for Singaporean investors with a long-term strategy, they don't have to be devastating. It's crucial to remain calm, avoid impulsive decisions, and have a plan in place. Here's how to prepare and what to do when the stock market crashes.

1. Reassess and take stock of your financial portfolio

A market downturn isn't a valid reason to panic sell. Instead, it's a time for careful reflection. Review your investment choices and their original purpose.

A thorough assessment includes understanding the composition of your portfolio. Are you primarily invested in blue-chip STI stocks, high-growth U.S. equities, diverse ETFs, or a mix? Reflect on your investment objectives: Are you focused on generating income, achieving capital growth, or building a retirement nest egg? Your investment goals should guide your decisions during a downturn.

For instance, if your portfolio is geared towards long-term capital growth, short-term volatility is less concerning than if you're relying on investments for immediate income. Before investing, it's important to know your risk tolerance, i.e. how much volatility you are willing to withstand for higher potential returns.

During a market correction, it's vital to delve deeper into your individual holdings. Revisit your reasons for investing in specific stocks or assets. Assess how severely they've been affected by the downturn and analyze the factors contributing to their decline. Try to forecast their potential recovery timeline, considering industry trends, company fundamentals, and overall economic outlook. 

This research can help you differentiate between temporary setbacks and long-term deterioration.

Ideally, before investing, Singaporean investors should gauge their risk tolerance – their comfort level with market volatility for potentially higher returns. Your portfolio allocation should align with this tolerance. If you find yourself overwhelmed by the current losses, it's a signal that your portfolio might be too aggressive.

This is an opportune time to reassess your risk appetite and adjust your holdings accordingly. If you entered the market without this assessment, use this downturn as a learning experience to better understand how much loss you can realistically handle.

For instance, if your portfolio is geared towards long-term capital growth, short-term volatility is less concerning than if you're relying on investments for immediate income.

2. Diversify your portfolio

In a market downturn, a well-diversified portfolio can significantly cushion the blow. Diversification, spreading your investments across different asset classes, is a fundamental strategy for mitigating risk. 

Avoid overconcentration in any single sector; for instance, relying solely on banking or REITs can expose you to sector-specific shocks. If those sectors perform poorly, your entire portfolio will be heavily impacted.

True portfolio diversification extends beyond sectors. It involves allocating your investments across various asset classes. Equities (stocks) offer growth potential but carry higher risk, while bonds provide stability. Holding cash or investing through CPF schemes and robo-advisors can offer further diversification. 

International diversification is also prudent. Investing in markets beyond Singapore can hedge against regional economic downturns, as different economies may react differently to global events. Take your time to look into the best options for investments you can make that will stay relatively stable, especially for a market crash.

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3. Gauge when the dip is at a comfortably low point, and buy in

Market downturns can present buying opportunities for investors with a stable financial footing. If you have a solid emergency fund, have allocated funds for retirement, and possess sufficient liquidity, buying at a dip can be a chance to acquire assets at discounted prices. This method is also known as value investing.

However, caution is paramount. Avoid jumping in blindly without research. Uninformed buying can lead to further losses if the market continues to decline. Consider employing dollar-cost averaging to mitigate the risk of mistiming the market. This strategy involves investing a fixed amount of money at regular intervals, smoothing out your purchase price over time. 

Remember to revisit your risk appetite; if it's conservative, consider a more gradual approach. Buying quality companies or fundamentally sound assets at a discount can be a strong long-term strategy, but only if you can withstand potential further declines.

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4. Get a second opinion from a financial professional

Investing is rewarding when the market is bullish, and your portfolio grows steadily. However, downturns can trigger self-doubt and poor decisions. Even seasoned investors can fall prey to short-term panic. Don't let emotional responses derail your long-term financial plans.

A second opinion from a qualified financial advisor can provide invaluable support during turbulent times. They can offer an objective assessment of your portfolio, identifying potential weaknesses or areas for improvement. It might be time to swallow your pride and seek help. An advisor can help you avoid emotionally driven decisions, such as selling low out of fear, and provide a rational perspective when markets are volatile. Moreover, they can help you understand your options, such as restructuring your debt or optimizing your financial plan. Having a professional to discuss your concerns can provide much-needed reassurance and guidance.

» Read more: The best robo-advisors in Singapore (March 2025)

5. Pivot to a long-term goal

Watching your portfolio's value decline during a market crash can be incredibly stressful. It's natural to feel anxious and want to take immediate action. However, for those with a long-term investment horizon, inaction is often the most prudent strategy.

Remember that selling during a downturn crystallizes your losses. The Singaporean market, like global markets, has historically recovered from every major crash. While the timeline varies, history offers a degree of hope. Staying invested allows you to participate in the eventual rebound, which often outweighs the losses incurred during the downturn. Trying to time the market – predicting the exact bottom and top – is notoriously difficult and often leads to missing out on significant gains. Re-entering the market after selling can be costly, as you may buy back in at higher prices, sacrificing potential recovery gains. Consider staying the course.

6. Make use of any available means to enhance future gains

While market downturns are uncomfortable, they can also present opportunities to position yourself for future gains. One strategy is to continue your regular investment contributions, including monthly Supplementary Retirement Scheme (SRS) top-ups or investment plan contributions. This is a form of dollar-cost averaging, buying more units when prices are low.

Additionally, look out for potential promotions or rebalancing opportunities. Market fluctuations can cause your portfolio to become overly skewed, with some asset classes becoming overweighted or underweighted. Rebalancing aligns your portfolio with your original asset allocation targets.

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A look back at major stock market crashes throughout history

While the stock market experiences its share of ups and downs, significant crashes, though impactful, are less frequent than often perceived. Understanding these past events provides valuable context for Singaporean investors, highlighting the cyclical nature of market behavior and the importance of a long-term perspective.

• 1929: The market's collapse, fueled by economic contraction and widespread panic, triggered the Great Depression. The subsequent downturn lasted for years, with the market hitting its lowest point in 1932, over 80% below its pre-crash peak. Recovery took over two decades, profoundly impacting global economies, including Singapore's.

• 1987: "Black Monday" saw a dramatic 25% plunge due to market imbalances, investor fear, and the nascent influence of computerized trading. This event led to the implementation of circuit breakers in many markets worldwide, including Singapore, to curb panic selling.

• 2000: The Dot-Com Bubble, driven by excessive speculation in internet companies, burst in March 2000. The S&P 500 lost nearly 50% of its value, with a recovery period spanning seven years. This crash highlighted the risks of speculative investment, even in seemingly innovative sectors.

• 2008: The Global Financial Crisis, stemming from the U.S. housing bubble and subprime mortgage crisis, caused the S&P 500 to decline by almost half. Recovery took approximately two years, demonstrating the interconnectedness of global financial systems and the impact of credit crises.

• 2020: The COVID-19 pandemic led to a sharp market decline of over 30% in early 2020. However, the market's recovery was relatively swift, rebounding within about six months, fueled by unprecedented government intervention and global economic stimulus.

Curious to know how the stock market is doing? Here’s a look at how the S&P 500 is faring in the past month:

Disclaimer: Stock market data is subject to change, and values may be delayed. Data presented here should only be taken for informational purposes.

It's crucial for Singaporean investors to recognise that stock market crashes, while painful, are often part of broader economic cycles. These cycles typically involve periods of expansion, peak, contraction, and trough. Understanding this cyclicality can help investors avoid panic selling and maintain a disciplined approach to long-term wealth accumulation.

Do you know how to prepare for a stock market crash yet?

Global events and economic shifts can create market volatility, and while it's natural to feel anxious, it's crucial to have a plan. To minimize the impact of market fluctuations, consider automating your investments. Setting up regular, automated contributions to your investment accounts helps you avoid the temptation to time the market, which is notoriously difficult.

Avoid panic selling, especially with long-term holdings like CPF Investment Scheme (CPFIS) funds or retirement portfolios. These are designed for long-term growth and should not be liquidated in response to short-term market drops. Regularly review your asset allocation to ensure you're not overexposed to volatile assets like certain equities or sectors. Diversification is your friend.

Stay informed about market trends and economic news, but avoid being overly reactive to every fluctuation. Having a well-defined investment plan and understanding your risk tolerance can significantly reduce fear-driven decisions and help you stay focused on your financial goals.