Corona crash – your questions answered quickly
What do investors do after Stock market crash? Get back on board in good time after the stock market crash and diversify your portfolio, for example with discount certificates or gold.Corona Stock Market Crash – Recommendations & Tips
The fastest stock market crash of all time offers opportunities for experienced long-term investors and ETF savers.
Our recommendations ng: If you are already an ETF saver, then under no circumstances should you suspend savings rates in times of crisis.Investors can also set up an ETF savings plan during a bear market, which pays off in the long term.
Product recommendation: If you want to use reduced price levels to get long-term The intelligent ETF savings plan OSKAR use.Corona virus puts investors in shock freeze
The stock exchanges have been doing surprisingly well for years.There were always short setbacks, but these were soon followed by new highs.There would have been enough reasons for a stock market crash: The slowing economy in Europe, the trade dispute between the USA and China, possible US tariffs on EU imports, Brexit etc.
But it wasn’t economic problems or a real estate bubble that ultimately caused one of the biggest stock market crises of all, it was a virus that caused the Shocked investors and sent indices, stocks and commodities downhill.
Within a few weeks between mid-February and mid-March, important country indices such as the German DAX or the US Dow Jones lost a third of their value.The very broad MSCI World Index, which is important for many investors, also slipped almost 30 percent at times.
This post explains how you as an investor react to a stock market crash like this and how you should best behave now in the corona crisis.We’ll tell you why an investment in stock market crises can make sense and what advantages long-term investors such as ETF savers can have due to a setback in the stock market.Before, during and after a stock market crash
The corona crisis has left major skid marks in the portfolios of most investors, and the sudden crash hit professional and private investors cold.Such a crash was almost unthinkable just a few days before.
In contrast to the financial crisis and the subsequent euro crisis a few years ago, this time there were no signs of an impending stock market crash.Hardly any stockbroker could have foreseen in advance how the pandemic triggered by this new type of coronavirus and the subsequent economic consequences for companies around the world would spread fear and horror among investors.
Presumably only investors got away with it relatively lightly who had prepared their securities account in advance against such a sudden setback on the stock market For example, those who had hedged the securities in their portfolio with stop loss orders or trailing stops could keep the loss within limits.
Note: A distinction must therefore be made between three phases: before, during and after a stock market crash.
In the following there are important tips on how investors basically should invest as they during a crisis have to react and how they after a stock market crash to optimize your portfolio again.
First we deal with the current situation.So we want to clarify how you as an investor should behave now during the Corona crisis and fundamentally in crash phases.
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The coronavirus has the fastest Stock market crash of all time triggered , according to an analysis by Bank of America.Within a few days, the corona crisis brought investors price drops in indices, individual stocks and commodities, which were significantly worse than those of the 1973 oil crisis, the crash caused by the bursting of the dot-com bubble in 2000 and 2001 and the financial crisis in 2008 and 2009 There has never been a similar scenario in the past.
Accordingly no serious expert can predict exactly when this stock market crash will finally be over and when the prices on DAX, Dow Jones & Co.will reach their pre-crisis levels again.
But: At the end of a stock crisis, the market has always come back in the past , the most important leading indices repeatedly exceeded their pre-crisis levels – sometimes this only lasted a few years, sometimes more than ten years.But the analyzes of our guide editors show: Every 15 years investors have seen an average return of eight percent per year for their money.This knowledge provides courage for investment behavior.
The corona crash as an opportunity for investors
First of all, it can be stated that it is fundamentally it is a good idea to invest your money in the stock market – especially in times of record-low interest rates.
For example, anyone who invested their money in a DAX ETF in the ten years before the Corona crisis was able to increase their capital by more than 120 percent: between 2010 and 2019, 100,000 euros became more than 220,000 euros.
Furthermore, it is good if investors do not buy their stocks at a high.A crisis can therefore offer an opportunity – especially with a long-term investment strategy.Those who do not buy at the peak of the market, but significantly below, increase their chances of return.At the same time, the risk for the investor of remaining in the red for a long time is reduced.
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So there are many arguments in favor of entering the market in times of crisis and low prices.
But you should always do this carefully, You shouldn’t put everything on one card .In the current crisis, that means watch the developments of the coronavirus in Germany and around the world.Find out regularly about coronavirus news and whether the individual countries can contain the corona pandemic with their measures.Take a critical look at the markets and initially enter carefully with small amounts – this applies in every phase of weakness on the stock market, but especially now in the current corona crisis.
Why? The past is of course no guarantee for the future.Nobody can really look ahead, nobody knows for sure whether the stock exchange prices will reach their old level again, because: There has never been a stock market crash triggered by a virus, there is simply a lack of knowledge about how best to do it with one such (not man-made) stock market crisis is to be dealt with.
Tip: If you want to use the reset to get started, then divide or quarter yours Capital that you want to invest.
Get on now with the first third / quarter and with the second third / quarter in a month or later.You can then invest the rest of the capital in three or six months – so you have time to better assess the situation on the stock market .With this “nibbles” strategy, you will certainly hardly lose any return, as the price rise usually takes significantly longer than the crash.Coronavirus and Covid-19 – did you know?
This stock market crisis was sparked by a coronavirus that causes the life-threatening lung disease Covid-19.
Coronaviruses are a family of viruses.Among other things, they trigger harmless colds and the flu.
The “new coronavirus”, which is currently rampant worldwide, also belongs to the coronavirus family.
The WHO assigned the name to this new type of coronavirus Sars-CoV-2 (“Severe Acute Respiratory Syndrome” -Coronavirus-2).This virus can cause symptoms in the human body, but infected people can also remain completely symptom-free.
With Covid-19 (Coronavirus-Disease-2019) is affected by Sars-CoV-2 triggered respiratory disease term.Accordingly, patients with Covid-19 disease carry the Sars-CoV-2 virus and show symptoms.Get into individual shares now? Only for professionals
During an ongoing bear market, we advise less experienced stockbrokers not to invest money in individual stocks.“Old hands”, on the other hand, are usually able to assess the opportunities and risks relatively well during a stock market crash – presumably also during this corona crash.
READ ALSO: Dow Jones Futures: Stock Market Rally Faces Next Test; Netflix, Texas Instruments Earnings Due
If you are familiar with the market and are intensively involved in selecting stocks, the current situation can be a starting signal for you to enter the market.The Corona crisis offers long-term investors in particular the opportunity to get into substantial companies at particularly favorable prices.In the midst of a stock market crisis, investors should pay special attention to quality stocks , these include, for example, SAP, Microsoft, Amazon and Apple – read also the comment Is the time ripe to buy stocks? by Volker Altvater.Investors with an ETF savings plan should keep saving
Investors with an ETF savings plan can relate to the Corona Crash look relaxed.Because an ETF is usually very broadly diversified, ETF savers can be much more courageous than investors who rely on Set individual shares.In particular, ETF savers who have been paying into a savings plan for months or even years should by no means suspend the installments.The reason is simple: ETF savers now receive more ETFs or ETF shares for their budget.
An example: So far, ETF savers have had their monthly savings rate of 100 For example, if you receive an MSCI World ETF in euros, you may get two ETFs on the world share index during the crisis – ETF savers buy in the bear market at a discount.With a long-term investment horizon of more than ten years, which should be a condition of an ETF savings plan, you can sit back and wait until the market rises again.
It can also be worthwhile to start an ETF savings plan during the stock market crisis.
Opportunities and risks are comparable to those of long-term ETF savers.
Note: This look at ETF savers cannot of course take your individual situation into account .
If you are at risk of losing your job or having less income as a result of the crisis, then you should possibly reduce your ETF rate or suspend it altogether for a short time – this is usually possible without any problems.
Tip: If you want to find out more about the advantages of ETFs, then read our advisory articles on this topic, for example buying an ETF, ETF savings plan, DAX ETF and MDAX -ETF.In the new YouTube channel of our advice editorial team, we also deal very intensively with the opportunities and risks of exchange-traded funds, for example in our explanatory video ETF selection.
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Investors who want to be successful on the stock market for many years must observe various rules.For example, you should put your finances on a stable footing and diversify your securities broadly, i.e.invest in different industries, assets, topics, countries and companies.
In our investment guide, we explain what you as an investor should pay attention to when investing on the stock market.There we present 7 important tips with which you have your finances under control.
If you follow the basic rules of investing, the chances are there not bad that you are successfully building wealth in the stock market.In order to protect you and your assets from a possible stock market crash (such as the Corona Crash), you should use professional tools.
We explain which these are below.Set stop loss and limit losses
A very simple way to limit losses are stop loss orders.Investors inform their broker of a price level below the current price.If this price level is reached, the broker automatically triggers a sell order.
A case study: A share is quoted at 100 euros.
An investor places a stop loss order at 90 euros.If the share price falls once to 90 euros or below, the sell order is triggered.This applies regardless of whether the share rises again later or falls further.
The main advantage of Stop Loss Orders: Investors limit their losses completely automatically and without constantly monitoring the prices .
If you lose 10 percent of your stake, you need a profit of 11.1 percent to get back to the starting level.On the other hand, if you lose 50 percent, you will need 100 percent profit later.
Important: Stop Loss Orders are unlimited sell orders.Once triggered, the sale takes place at the next best price.This can deviate significantly from the stop level under extreme market conditions and in the case of illiquid stocks.Possibly a stop loss order would only have helped to a limited extent during the corona crash.Save trailing stops Gains dynamically from
Trailing Stop Loss Orders supplement a simple Stop Loss with an adjustment mechanism.The stop threshold is “pulled behind” rising prices.
A case study: An investor buys a share for 100 euros.
He places a trailing stop loss order at 90 euros.In addition, it is stipulated that the stop level is raised by 10 euros for every 10 euros in full price gain.
This means the following: The share rises 110 euros, the stop level automatically rises to 100 euros.
If the price reaches 120 euros, the level is increased accordingly to 110 euros etc.
Note: If the rates fall, there will be no adjustment.Trailing Stop Loss Orders secure profits from stronger setbacks and also before a stock market crash like in the Corona crisis.
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Investors can add put options to their portfolio hedge against price losses through a stock market crash.In practice, most private investors will not resort to options contracts on the Eurex futures exchange, but to warrants.
Warrants are issued by numerous banks as bearer bonds and simulate the structure of an option.
The basic principle of a put option is very simple.The options relate to a specific underlying asset, for example the DAX.
Each option has an exercise price.The holder has the right to sell the underlying asset at this price.
Here is a case study, based on a DAX level at 12,300 points: The exercise price of a put warrant amounts to 12,300 points, the holder of the option can sell the DAX, in simplified terms, for 12,300 points.This right increases in value the further the DAX falls below this mark.
What does portfolio insurance with put options cost?
However, the costs of this insurance are not irrelevant.Anyone who chooses full hedging for all courses below with an index level of 12,300 points pays around 820 euros for the necessary put warrants.This corresponds to an insurance premium of around 6.7 percent.
An example: If the DAX falls by 300 points to 12,000 points, the profit in the warrant amounts to 300 euros if the option is drawn on the due date.
These costs apply to puts with a term of about one year.If the DAX is trading at or above its current level at the end of this period, the stake is lost.
Puts are therefore not a permanent solution.
Important: Fire insurance is particularly expensive when there is a fire.In a figurative sense, this also applies to put options.In addition to the remaining term and price of the underlying, the implied volatility plays an important role in the price of an option.The implied volatility is a measure of the fluctuations investors expect.Once the crash occurs, options immediately become significantly more expensive
After the first big day of loss as a result of a stock market crash, the volatility typically increases massively – and with it the cost of put options.With scenario calculation tools for warrants, it is easy to determine how an OS will develop in the event of a crash.
With an increase in volatility from 16.66 percent to 25 percent, the cost of an “at the money” warrant would increase by around 50 percent.
The insurance against the stock market crash is also available with a “deductible”.The exercise price of the put options is not the current DAX price.Instead, a course is selected below.Who instead of 12,300 points 11,050 points as a safeguard ungslevel chooses, pays considerably less.This hedge is possible with put options for around 415 to 420 euros.
The you might also be interested in: Protect against stock market crashes with CFDs and Knock-Out Certificates
Did the crash already started, options are expensive.In this case, derivatives can be used to hedge against price losses, where the volatility does not lead to large price jumps.
These include knock-out certificates.
With a Bear-KO certificate, investors rely on falling prices in the underlying.With these products, a portfolio can be hedged against price losses – but with restrictions.
A slightly simplified case study.An investor buys a KO certificate on the DAX with a KO threshold of 12,400 points.The DAX is trading at 12,300 points.
The intrinsic value of a Bear KO certificate results from subtracting the current DAX price from the KO threshold – in this case 100 points.With a subscription ratio of 1: 1, this corresponds to a theoretical price of EUR 100.
In practice, surcharges make it closer to EUR 120.
If there is a stock market crash and the DAX falls to EUR 11,500, the certificate wins EUR 800 added value.However, if the DAX rises to the level of the KO threshold once, the certificate expires worthless.
The KO mechanism is the greatest weakness of KO- Certificates for securing the depot.The DAX could briefly rise to 12,400 points, knock out the certificate and then start a stock market crash.The insurance would then be ineffective.Investors must spend more money for KO certificates with KO barriers further away.Short ETFs – did you know?
Another option against the Stock market crashes are short ETFs.
These are available on the DAX and other major indices.A short ETF develops in a mirror image of the underlying.If the DAX falls, the short ETF wins.In addition to ETFs, there are also certificates for this type of index.
Important: The greatest weakness of this type of protection is the high capital expenditure.
In order to hedge an investment of 1,000 euros in the DAX with a short DAX, 1,000 euros are also possible.However, there are short indices with leverage (for example x2 or x4).The stock market crash is getting closer? VDAX in the portfolio
Another way to hedge against the Crash is the addition of volatility to the portfolio.
In quiet times, volatility is very low.If there is panic and crash, it increases suddenly.A tripling of the volatility within a few days is then not unusual.
The VDAX-NEW is also considered the “fear barometer” of the stock exchange.The VDAX reached its highest level during the global financial crisis then more than 80 points.The index is currently well below 20 points.
20 points are considered normal.There are warrants and certificates for investments in the VDAX-NEW.The volatility indices of individual other markets can also be mapped via ETFs.
Caution: One problem with the VDAX-NEW is its complicated simulation.The index is based on options contracts that will expire in the near future and therefore requires constant rolling.
Rolling costs arise.Structured Products and the stock market crash
Structured products such as guarantee and discount certificates also come into question in a stock market crash.
But then it is important to consider what exactly is contained in a certificate.Then new issues in particular can be worthwhile.
Discount certificates consist, in simplified terms, of a long position in the stock market and a short position in options on this stock market.A simple example: The issuer of such a certificate buys the DAX.
At the same time, he writes purchase options on the DAX and sells them.This process is called “short” on the options market.The strategy securitized with discount certificates is also known as covered call writing.After the stock market crash, new discount certificates are attractive
After the stock market crash is before the next crisis.For investors, this means that they should under no circumstances rest on their well-performing portfolio, on the contrary: Make preparations for the next stock market crash that is certain to come – whether in two, five or 15 years.
New discount certificates can be attractive – you can find out what advantages these stock market products can bring to investors in our detailed guide article on discount certificates, here just the most important things quickly: This one Type of protection, the issuer receives a premium for the options sold.
The discount is financed with this premium, so investors enter the market at a discount to the current price.If the DAX rises above a certain value, the buyer of the option will exercise it.The exercise price of the option therefore corresponds to the cap of the discount certificate.
After a stock market crash, newly issued (!) Discount certificates can be attractive.
The reason is the short position on the options market, which is in the Structure is included.In the event of a crash, volatility and therefore option premiums increase.
The issuer receives a higher premium and can offer a greater discount and / or a greater distance to the cap.
Guarantee certificates, on the other hand, are less attractive after a stock market crash .Most of these papers consist of bonds and a small part of call options.
These cost more after the crash.This reduces the participation rate of the guarantee products.
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Gold is considered the currency in crisis.Is that why the coveted precious metal is also suitable as insurance against a stock market crash? The answer is: only limited.
Gold will retain its value even if everything else is worthless.However, this does not mean that a (generally temporary) crash on the stock markets is necessarily offset by a sufficiently large position in the gold market.Gold is an insurance against inflation and crises, but does not always guarantee a certain deposit value.
Nevertheless: Against a share of 5 to 15 percent of the portfolio In the opinion of most asset managers nothing speaks.
Opportunity costs in the form of a secure interest rate on government bonds do not currently exist anyway.Anyone who physically buys gold can keep it at home, in a locker or in a security store.Securities related to gold are cheaper.An example of this is the physically secured bond Xetra-Gold.Bitcoin cannot be the new gold yet
Some see the new gold in the crypto currency Bitcoin.It is possible that the coin faces a great future.It is also conceivable, however, that it will lose importance (and value) again.
Bitcoin has too little history to be the new gold.The digital currency is therefore not suitable for hedging a portfolio against a stock market crash.Stock market crash – you should do that
1
Keep your nerve when things go downhill.
Stick to facts and don’t rely on your gut instinct.
2
Under no circumstances should you rush to sell your securities.You only really make a loss when you part with stocks, ETFs & Co.
3
Companies in which you invested for good reasons before the crisis certainly also have the potential to survive the crisis successfully.Check whether your assessment of individual papers has changed as a result of the crash.
4
If you have invested in particularly high-quality companies so far, then you should stick to this strategy – and possibly even gradually buy shares.
5
ETF savers are long-term investors and should not make their installment payments suspend, on the contrary: In the event of major setbacks, it may be worthwhile to increase the rates or to make one-off payments.
MARKUS GENTNER – FINANZEN.NET EDITOR
Markus Gentner heads the advice area at finanzen.net.Before that, he worked in the news editorial team for five years.The studied journalist and Germanist discovered his passion for the stock market at the German investor television DAF, already during his traineeship he gained experience with advisory topics.
Note: Un Our guide articles are objectively researched and independently created.
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