Stock market chaos: What you should (and should not) be doing

The first rule always is not to panic. So what should you be doing instead? Here are 5 strategies I like to keep in mind.

If you've been watching the stock market lately, you probably have a serious case of whiplash.

Overnight, US shares soared over 10% after US President Donald Trump announced a temporary easing on Tariffs, and Australian stocks are set to follow suit Thursday.

It's a dramatic recovery after US and Australian stocks clocked their worst week since COVID.

When stocks are volatile, it can be tempting to try to cut your losses by getting out before it's too late.

But by selling when prices are on their way down, you not only cement those losses, you risk missing out on the recovery.

Recoveries which, as we saw overnight, can very often take investors by surprise.

And at the moment, there are a lot of moving parts for investors to wrap their head around.

But what happens next?

Stocks have not yet fully recovered from last week's losses and it's anyone's guess what Trump will do next.

The good news is, we've been through plenty of market crash events before. And did you know, we have a 100% recovery rate.

In fact, Trump set off a trade war when he was last in office in 2018, which also subsequently sent global stocks into a correction.

It was, at the time, one of the most dramatic stock market events since the GFC.

Today that feels like little more than a blip in time. Since then, the S&P 500 index has risen over 75%, while the S&P/ASX 200 is up more than 20%.

The moral here is that time in market, rather than trying to time the market, is the key to success.

Stick to your long-term strategy and don't give into the urge to panic sell when you see your portfolio shrinking.

Likewise, don't be tempted to panic buy in if stocks suddenly rally, because as we saw Tuesday when Australian stocks spiked, it may just be false hope.

Ok, so now that you know what not to do, what should investors be doing during a volatile market?

Here are a few smart moves investors should consider:

1. Dollar cost average in

When stocks are especially volatile, investing into the market can feel like a high risk endeavour.

This is where dollar-cost averaging (DCA) can be a useful strategy.

Dollar cost averaging is where you invest smaller amounts more frequently, rather than investing one large sum all at once.

The idea is that it helps to balance out any volatility in the market because you're not entering all in one critical (possibly bad) moment. Some deposits might occur just before prices collapse, and others just before a price surge.

To DCA, look for a share trading platform that offers an auto-investment feature, low brokerage and low minimum investments.

2. Invest an index fund ETF

While we've seen a dramatic rebound, the market has not yet returned to pre-crash levels.

And if Trump's higher tariffs are carried through (in 90 days), there's a good chance we'll see another correction in the months to come.

While nerve wracking, these downturns can be a great time to start investing into an index fund or drop additional funds into your existing one.

Index funds are stock portfolios that track whole markets, like the S&P500, Nasdaq Composite or Australia's S&P/ASX 200.

That means when the market is down, these ETFs are trading at a discount. You're essentially buying into a whole market while it's down to enjoy the recovery on the way up.

But even if you miss out on 'buying the dip', ETFs are about investing for the long term, regardless of 'when' you buy in.

3. Invest in high quality stocks

When stocks correct, it's the perfect time to buy into good quality companies trading at a discount.

If you're unsure, just ask Warren Buffett, arguably the world's most successful value investor.

In a letter to shareholders a few years back, Buffett reiterated his strategy: “When major declines occur, however, they offer extraordinary opportunities.”

Essentially, Buffett believes market crashes are an ideal time to scoop up good companies because their prices are momentarily lower.

Look for high quality blue chip companies that are likely to be around for a long time, such as major banks stocks or large technology firms with strong valuations.

4. Top up your super

If you hold stocks in your superannuation (most people do), it can be a good idea to salary sacrifice when the market is down.

Adding extra funds to your super is great for your future self thanks to the compounding effect, but you also get some serious tax benefits.

When you salary sacrifice up to $30,000 into super, you only pay 15% tax on that income, rather than your usual tax rate.

So by salary sacrificing sacrificing when the market is low, your benefits are two-fold once the market recovers.

5. Invest in gold

These days, gold isn't the perfect inverse to stocks, but its price does usually go up during times of economic uncertainty.

Gold is seen as a safe place to store your funds because it avoids the risk of being tied to any single fiat currency, industry or company.

So far this year, the price of gold has risen more than 15%, while the S&P/ASX 200 and S&P 500 are both down over 10% since the start of 2025.

You don't have to buy physical gold to benefit from rising gold prices. You can also invest in gold stocks (gold mining companies) and gold ETFs that track the price of gold.

When will stocks fully recover?

Well, that's the question everybody wants to know.

With the trade war brewing, investors are now weighing in the very real possibility of a global recession.

At this stage Trump has paused higher tariffs for 90 days. If and when those tariffs are eventually enacted, we might expect stocks to continue their downward spiral.

But here's where it get's tricky. Investors are also considering the possible impact of multiple cash rate cuts from central banks.

Cash rate cuts are usually good news for stock markets, so if rates are cut this year, we might see a full recovery sooner than we think.

Still it's a lot to weigh up. As with any stock market event, keep your eyes on the long-term and look for opportunities to invest, regardless of how the next 12 months pan out.