4 Steps to Make Money when the Stock Market Crashes

The DOW Jones has fallen to around 16,000 after hitting a high of 18,300 on May 2015; a 13% drop. Depending on what you’re invested in, you may have seen a large drop in your TSP, 401(k), or your taxable brokerage account. If you’re under 55, you should see this as an opportunity. If you’re over 55 and you’ve seen a 13% or more drop in your portfolio, then you’re not correctly investing your money in the first place. For those under 55, stock market drops can be a good thing to take advantage of. Here’s how:

• Put more money in as the stock market drops. Most people have their retirement savings on autopilot. TSP and 401(k) contributions are automatically taken out of our paychecks. Some people also have IRAs and a taxable account as well. As the stock market is dropping, you should increase the money you’re putting in your TSP or 401(k). For military members, you can go to MyPay and change the amount anytime you want. For civilians, you’ll have to use your online retirement system or go through HR. Remember, you can only put $17,500 a year in a retirement account.

o    As the stock market drops, you’re able to buy more at the lower prices. Think about it like a sale on stocks or a military discount. You can buy your favorite stock at a 10% discount when the market falls.

• Find high-paying dividend stocks. In Jim Cramer’s book, “Getting Back to Even,” he calls stocks that pay high dividends because their stock price fell, accidental high-yielders. When World Wrestling Entertainment’s (WWE) stock dropped, its dividend rose to 4% and I bought it. There are many dividend-paying stocks whose dividends rise because of the overall stock market dropping.

o    This mainly applies to people choosing their own stocks or mutual funds. You can use any stock screen to find these. I like Yahoo! Finance and Fidelity’s stock screeners. I search for stocks that have fallen with a 3% or higher dividend yield.

• Avoid selling stocks. Over the long term, people who sell stocks automatically after a certain % drop tend to lose money. If you’re buying individual stocks, then you should only buy and sell based on a company’s fundamentals and not stock movement. 99% of the DIY investors Buy High and Sell Low because they are too emotional. When Tesla (TSLA) hit $290, a friend got excited and recommended it to people because he wanted to be a part of the stock’s rising price. Unfortunately, the stock lost steam and, at one-point, fell back down to $180; yet my friend was no longer promoting the stock at the discounted price.

o    If you know you’re emotional then avoid buying and selling individual stocks and mutual funds. You’ll lose money over the long run.

• Don’t time the market. People often wait on the sidelines for the perfect moment in the market drop. They’re so scared of investing at the wrong time that they miss an opportunity all together. This is the major reason why after nearly two decades of DIY investing that I’m not a billionaire; because I’ve incorrectly timed the market. I’ve bought on the way down (low) and sold on the way up (high). Don’t worry about trying to find the perfect time to buy. If your portfolio is less than $1M, then minor changes in your returns/losses will be less than missing out on opportunities all together.

Buying low and selling high seems like such an easy system but when the stock market declines or increases rapidly, people often do the opposite. This psychological response is why gambling is so profitable for the “bank” and so disastrous for gamblers.

The Power of Referrals

Being in the military means dealing with change. Frequent moving around involves frequently opening up new accounts with banks, service providers and utility companies. But do you know there is a way to cash in on all this?

Several companies often offer referrals to benefit the existing customer and the new customer. If everyone in the military started taking more advantage of these referrals, then we could really start making some money off our frequent moves.

In 2014, my family and I moved to Barksdale AFB, Louisiana. We bought a house and established our utilities by using the ones recommended to us by friends. But if the Housing Office or some private organization on every installation had a running list of referrals, then once you inprocessed, you could choose your service providers and then you would be provided a "referrer's" name to use, so both people make money. This list would be even more beneficial to those coming back from an overseas assignment since they would have to establish all new accounts versus transferring like CONUS-to-CONUS moves.

Here are two examples of what I'm talking about. But review the services you currently use and then look up the potential referral money you can pursue.

Dish Network: My family loves Dish Network. If someone refers a friend to Dish Network, they both get $50 off their next bill.

Internet Service Providers: Our local area uses Sudden Link for cable modem service (faster/cheaper than the DSL offered here). Their refer a friend gives $25 to both the referrer and the one being referred (is that considered a referee?).

Referral programs are important outside of frequent military moves too. Most banks and brokerage companies offer referral programs too. Here is an example from one of the banks I use:

Capital One 360: This is a separate bank I use solely for my emergency savings account. This bank, formerly known as ING Direct, pays both people $20 if customers open a bank account with $250 or more. If you are interested in this bank while reading this post, use this link to set an account with $250 or more: https://r.capitalone360.com/V1AVDPYTUb

I'm going to see if one of the private organizations I regularly participate in would allow me to establish this program. A new member to a unit could simply choose the service providers they would like to use, contact me, and I could provide a name, on a first in/first out basis, and both would benefit.