How to Make Money in a Stock Market Crash

Do you hear that noise? That's the sound of stocks falling. 

The stock market has been very volatile these days, to say the least. In January, we've seen steep losses to many stocks (mostly in the tech sector). And it's likely that stock values will get worse before they get better.

But believe it or not, you can actually make money during a stock market crash.

Instead of hiding your head in the sand (or gold coins in your backyard), we've pulled together some tried-and-true methods for not only surviving a market crash — but thriving in spite of it.

To find out how, keep reading our guide to making money in a stock market crash.

First Off, Don't Panic

If you're a sci-fi nerd, you probably know the two words written on the cover of  The Hitchhiker's Guide to the Galaxy:

DON'T PANIC

No matter how far the market is falling, panicking is never a good idea.

One of the prime rules of smart investing is ignoring your emotions. That's because our emotions tend to make us act on impulse. And impulsive actions are never good when it comes to investing.

Right now, a lot of investors are panicking and experiencing the emotion of fear.

That leads them to bail out of stocks at the absolutely worst time — when they're super-low.

The point of investing in stocks is to buy low and sell high, not the other way around.

Legendary investor Warren Buffett had a classic quote:

"Be fearful when others are greedy and greedy when others are fearful."

Right now, there are a lot of fearful investors. So get your greed on!

Buy Good Stocks at a Discount

So instead of panicking, we should use this opportunity to buy shares of good businesses at good prices.

That doesn't mean piling into stocks willy-nilly. 

Instead, look for companies that generate real profits. It's probably a good time to stay away from stocks with high debt-to-equity ratios (that would include many growth stocks in the tech sector).

Stocks that tend to recover well from market downturns include financials (think banks), health care (but don't go for moonshot biotech startups), consumer staples (everyone needs toilet paper), and industrials (raw materials for the win!).

Buying a stock when it's at or near a low is often referred to as "buying the dip."

When attempting to buy the dip, don't worry about timing it exactly right. Many times, investors lose out on great deals by waiting too long. Decide what you'd like to pay for a great company, and snap up shares then.

Buy Dividend-Paying Stocks

Stocks that pay regular dividends to shareholders tend to be among the safest on the market. As you hold these stocks, they will pay you income.

Now, there's no guarantee that any dividend stock will continue to pay out. Sometimes, during recessions, dividend-paying securities will halt payouts or decrease their payout rates.

If you're interested in dividend stocks, a great place to start is the Dividend Aristocrats list. Right now, there are 65 stocks on the list, which is compiled by the S&P Dow Jones Indices.

Here are the requirements to stay on the Dividend Aristocrats list:

• A company must have increased its dividend payouts every year for at least 25 years.
• A company must have a market cap of $3 billion or more.
• A company must be included in the S&P 500 stock index.

Because these companies have not only maintained dividend payouts but increased them as well, it's safe to say these stocks are good bets for a market crash. They've recovered from every other downturn of the last few decades.

Pro tip: When you receive a dividend payout, reinvest it!

Or Do Nothing!

There's a beautiful, ancient saying

 "This too shall pass."

Although the seconds feel like hours when you're frantically refreshing your WeBull account, know that the downturn won't last forever.

And no matter how low stock prices go, if you don't sell, you won't have lost a dime.

Instead, keep a long-term outlook and expect to still see gains in the future.  

Why You Shouldn't Load Up on Bonds Right Now

OK, so a lot of investors right now are getting out of stocks and moving into bonds (particularly Treasury bonds).

Treasury bonds are backed by the full faith and credit of the federal government. They're about as safe as you can get when it comes to investing.

But here's the thing: The U.S. central bank, the Federal Reserve, is likely to raise interest rates this year. Right now, bond yields are at record lows. Why get in now when you can wait a few months and most definitely get more bang for your buck?

That said, it's always a good idea to have a diversified portfolio — with some money in stocks, some in bonds, and some in other assets like precious metals and real estate.

Just never put all of your eggs in one basket.

The Bottom Line

If you're relatively new to investing, I get it: Market downturns are scary!

But if you keep a cool head and make smart moves, you can actually make money while others are panicking and losing out.

And if you'd like to learn more about profiting from today's market, check out our in-depth trading alerts. You'll receive daily intel and education from our dedicated team.