Why You Should Be Happy When the Stock Market Crashes
I know, I know. This is probably a tough one to sell, but hear me out: You should be excited when you see the stock market tumble. Assuming you're not a day trader -- but a true investor -- there's only opportunity to be had when the market has down days. Moments like these should trigger the desire to deploy extra cash and reaffirm your commitment to your long-term asset allocation. Remember that any reinvested cash will buy into the market at lower prices, thereby awarding you with more shares. Down days also provide opportunities to manage your tax liability.
Stock market declines provide an opportunity for you to lower your average cost basis by investing money at lower prices. When your cost basis is lower, you'll have higher unrealized gains once the market recovers. While many of the headlines will tell you to panic sell and to be worried about humanity's very existence, the prudent move is generally to buy more of the stock market.
If you're investing in high-yield dividend stocks, or even just ETFs with low yields, any cash distributions from these holdings will be reinvested at lower levels when markets crash. You will then own more shares for every dollar reinvested, which will pay great dividends when the market finally recovers -- and thus, the cycle repeats. Also, by virtue of owning more shares of a particular investment, you'll receive more in dividend income in the future, regardless of where the market happens to be when dividends are actually paid.
Source Fool.com
