Steps To Prepare For Stock Market Crash

Stock market is a place where everyone comes and invest in companies in which they believe in. Or some newbies who want earn quick money try to do intra-day trades in order to gain daily profit. Whatever it is. Obviously, it’s a personal choice what you are going do in market. But how stock is performing in stock market depends on your perspective towards stock market. When someone sees stock plunging, they sell their position. But some sees plunging stock as opportunity and they buy and hold. After recovery when stock market starts running up and up, they make profit and sell it.

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Most of the time when stock price goes down people start selling it which pushes stock further down. And big investors like warren buffet always keeps an eye on such movement which they don’t hesitate at all to grab. And what surprising thing is people like us gives them such golden opportunity. So, my suggestion would be to not to panic in such down movement instead of that try to see the market from much broader perspective. That doesn’t mean you should keep on holding the stock for lifetime but you should know when to hold and when to sell. And one more thing is mistakes happens. Even big investors tend to make mistake. But, by just seeing market is crashing you don’t need sell of your position. Rather you can prepare your own crash-proof portfolio. And natural question to pop-up when you say crash proof portfolio is what the heck? How to create one? I mean lot of people are saying crash proof? How to exactly implement it? Are there any hidden stock which are crash proof? No absolutely No. There are not. I mean every stock trading on market is prone to crash. So, there is nothing crash proof then why and how to build crash proof portfolio?
The answer is while creating portfolio you have to take certain things into consideration like not keeping all of your money into stock market. There has to be some kind of emergency fund that you should keep with you in case of market crash. So, that you can survive at least next 3 to 6 months with it. And most famous and secure place to keep your emergency fund is to put it in saving account, bank account. This is really important because, selling off after a market crash can devastate your long-term returns. But if you have enough cash set aside that you could live off of for several months and you commit to staying invested, you don’t have to be afraid of a market crash.

A) Long Term view of portfolio:

Next thing you can do is to be careful while re-constructing your portfolio. Because, after pandemic crash people lost millions of dollars but what happened after that it recovered eventually. And now the market is actually recovered this is the perfect time to measure and re-analyze your risk capacity. That means you need to ask yourself How much loss you can handle? And likewise, you need adjust your stop-loss price for your portfolio stock and make sure it lines up with how you actually reacted when stocks were plummeting. Because real life simulation gives you exact scenario that about your capacity. It does not matter whether it is lower or higher you need to re think and adjust at that price you thought you should sell of when market was crashing. For example, you bought stock for 100 dollars and you were ready to take risk until it reaches 50 dollars. But, when market started crashing and because of uncertainty and panic you decide to sell it when stock price reached at 70 dollars. That means you wasn’t ready for 50 dollars and your real psychological risk-taking capacity is 70 dollars like that you need to re-adjust. You need to re evaluate and re-analyze.
If you are young then think very carefully before rebalancing because you’re worried about the market’s near-term performance — particularly if you’re thinking of shifting to a more traditional allocation and you have a decade or more until retirement. When you go with a lower-risk portfolio, that generally means you shift some assets from stocks to bonds.
And bonds with almost zero interest means lower bond yields and you can not keep up with inflation. Remember if you are long term investor you don’t have to worry about what is happening in market in short-term. It may go up and down. You should focus more on opportunities in market if you are long-term investor.

B) Diversifying your Portfolio:

Next thing you can do is to diversify your net worth outside stock market. This is the one of the best things you can do. Because stock market is prone to ups and downs. I mean to say yes, it is very much possible that market crashes due uncertain event that we saw in this pandemic but if you are not comfortable with stocks, I would suggest keep small percentage of your net worth in stock but with that invest in gold ETF. It is best way to buy gold electronically without having to go to store and buy it physically. Try to find out those investment option which are inversely proportional to stock market or is not connected to it. Like real estate even when stock market was down real estate rates were constant as before pandemic. They might have changes little but it didn’t make hole in your investment profit pocket. It’s tough to build a diversified portfolio by hand-selecting your own investments. If your portfolio consists exclusively of individual stocks, now is a good time to diversify by adding index funds to the mix. But still if you are worried about overall market it is good idea to invest in gold and other businesses that do not have direct co-relation with stock market.

C) Do Nothing:

And the last thing you can do if you are really worried about crash and still want to invest in stock market is to do nothing. If you have a long-time horizon and you can deal with the stress of seeing your investments suddenly going down in the short run, the best thing you can do is nothing. When people fear a crash, they often stop investing. Or they cash out or rebalance too conservatively. Any of these strategies is far more likely to hurt your long-term returns than a market crash.

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D) Calm yourself by investing only fraction of your net worth:

Consider the words of mutual fund magnate Peter Lynch: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” That means people’s market crash fear made them loose more. If they could have waited for recovery they would have minimized their looses or they would have ripped the fruit of profitable investment. That’s why always remember market is volatile and if you are panicking because of market crash then first of all try to calm yourself in situation of market crash. And way to do that is to never invest your all money in stock market. Let’s say if you are net worth is 1 million dollars invest only 50% of it market and put other into such medium that you can easily take it out when you need and it will be safe in that medium in the course of your entire lifetime.

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