Kevin O'Leary: What To Do When The Stock Market Crashes

Shark Tank's Kevin O'Leary shares tips on how investors can build a portfolio of stocks, bonds and cash in order to weather increasing volatility in the stock market.

On Friday the Dow Jones Industrial Average dropped more than 500 points before recovering most of the decline.

While such market volatility may be scary for new investors, you can't let it get to you, financial expert and "Shark Tank" star Kevin O'Leary tells CNBC Make It.

"Never cry when the market goes down, because it's not crying for you," he says. "You should never get emotional about the stock market."

Here are O'Leary's top tips to survive the market's ups and downs.

1. Don't panic
"The truth about markets is that they never go straight up," O'Leary tells CNBC Make It.

For the last few years, the market has been less volatile, he says, so young people "are not used to major corrections, and so now we're starting to get them," he says. "These are normal phenomena."

You have to think long term.

"You'll see the markets go up and down," says O'Leary, "but over a long period of time — and this has been consistent since the beginning of stocks in America — they grow over time because the companies and the economy grows over time." The S&P 500 index, for example, has earned an annual average return of 9.8 percent over the past 90 years.

"You want a piece of that for your future."

2. Buy for value
If you "buy companies that are profitable and that have good balance sheets that pay dividends," says O'Leary, "you can sustain yourself through these massive corrections."

You can still do this, he says, "even if you only have $50 to invest or $100."

O'Leary, who owns O'Shares ETFs, recommends exchange traded funds because they are inexpensive and tax efficient. These ETFs are buckets of securities that track an index.

Similarly, other experts, including O'Leary's fellow Shark Mark Cuban and investor Warren Buffett, recommend index funds, which you can think of as low-risk, low-cost baskets of stocks.

You may also consider using an app that allows you to buy fractional shares, says O'Leary. His app, Beanstox, and others like Stockpile do this.

3. Diversify
"You shouldn't have all of your money invested in stocks — that's too risky," says O'Leary. "You also need some fixed-income like bonds."

And "keep some cash around," he says. "You feel much better if you have cash, even though your portfolio may be [temporarily] down 20 percent."

"Diversification is the only free lunch," adds O'Leary.

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Kevin O'Leary: Here's what to do when the stock market crashes | CNBC Make It.

[Mary-Flint]

I have a 3 fund portfolio consisting of 33% S&P, 33% Total stock, and 33% international. I added more stocks recommended by a pundit on reddit for rapid growth, but after watching my $250k portfolio dwindle away, I'm only here for the advice on how to revamp portfolio.

[hotstockgirl]

If you get scared out of the market every time it corrects you are guaranteed to lose money.

[dannyYT]

All you have to do is throw $20 a day into a shoebox for a year and come Christmas time you have $7, 300 to throw into the stock market. Rinse and repeat. If you cant afford $20 do $10 even $5.

[ThisDaniel]

What to do when every asset class in the world is propped up by central bank monetary policies, resulting in artificial pricing mechanisms, and then the bank with the reserve currency begins raising interest rates while dumping its own balance sheets. What to do in that case then Mr O'Leary? Diversify into what would you suggest?

[coreyochai]

I love the fact these videos are short

[WhiteBoardFinance]

Stack your cash and buy when everything is at a good value! Cash is king!

[InvestingHustler]

Best way to prepare for a crash is to have a lot of cash ! 👌

[johnathanfoster]

Bonds are horrible investments. Throw your money in various ETFs with a large portion in growth ETFs and let it sit there till retirement... if the market is anything like the last 50 years, it'll grow at 12-14%. Never take your money out and keep a hefty emergency fund incase anything happens. You'll retire very rich. when you do retire, take 4-5 years worth of annual withdrawals (in case of a recession) and convert them to cash while keeping the remainder in the ETFs and watch as your money continues to grow even in retirement. This way you can leave money for your kids and make them too very rich.

[alejandroavila]

Can we invest long term with margin accounts? or do they have to be cash

[divizionx]

Not when the feds are exposed and taken down. Goodluck bold man

[SolutionsSolved]

Or you can anticipate the corrections and buy options

[TheSjh]

Yea co with good balance sheets are overpriced why not just trade instead of buying for the long term

[Stateofmind]

Today I quit investing with Acorns and am putting this money into Capital one 360 money market which will give a stabilized if not better interest than the the stock market.

[jimwong]

China always pursue win-win cooperation. But USA wants lose-lose!
History will remember: Trump stated recession (peaked in various areas--> then going down) in 2018!
Yes, he may make records (stock, employment+/unemployment rate, deficit, growth) in USA, but too short-sighted!
Sustainable? may be very difficult!

[DavidAxelrodP]

The market will be higher when we colonize Mars and beyond. Guaranteed.

[janyahyahudah]

Dollars will not be worth the paper it’s printed on !! You better stack some silver or gold real currency! So you can eat !