There are two types of investors (probably more than that but bear with me). The reactive investor who reads: “What to do when the market crashes.” And then there’s the proactive investor, who wants to know what to do before that crash.
Kudos to you. Now let’s begin:
The U.S. economy got smashed in 2020. Nearly 13 million Americans were unemployed in September. That’s about 7 million more workers than pre-pandemic levels.
In 26 states, more than one in five households was behind on rent in July. And that could worsen as unemployment benefits run out for 12 million more people.
Furthermore, the Federal Reserve printed money at an unprecedented rate to fit the bill for stimulus checks.
Despite all this… the stock market is booming baby! The Dow Jones is hitting all-time highs weekly! Tesla is up more than 600% year to date!! And don’t even get me started on Bitcoin (you should probably invest in a time machine).
In summation, the economy is a wreck, unemployment is near an all-time high, and the stock market is thriving as we’ve never seen it before. Something isn’t adding up here… So, just in the rare scenario that the market does suffer a horrible crash, here’s what you should do NOW to prepare.
1. Build your wealth now and don’t sell your long-term investments unless necessary
You should be boosting your emergency fund while the goings are still this hot. Also, even though our cash is being seriously devalued right now, it’s always good to have it on hand, especially in the wake of a crisis.
You should also reevaluate any stocks that may be overvalued right now. Do your research and watch out for companies that are riding a “hype” wave. Investors in EV company Nikola just learned this lesson the painful way.
The last thing you’re going to want to do is to sell your investments. If you back out during a crash it could cost hundreds or even thousands of dollars. Stay in the game unless you absolutely need that money right now.
After all, the saying goes “what goes down, must come up.” If you stay committed to your investments, you may thank yourself several months from the crash.
2. Diversify your portfolio
I’m in my early 20’s, which means I’m hungry to make money. If it were up to me, I’d invest only in stocks and give the finger to bonds and index funds. Unfortunately, if you do take this route, you’re going to eat a nice slice of humble pie one day.
A well-diversified portfolio can withstand a stock market crash. I’m not a big fan of gold, but it tends to move inversely to the stock market. Moreover, you can invest in a gold ETF to give you exposure without physically buying it.
What I am a big fan of, is cryptocurrency, or “Gold 2.0.” Regardless of what you choose, just don’t place all your bets in one place. Humble pie tastes awful.
3. Do nothing
“Carpe Vinum!”
Yes, that’s right. “Seize the wine!” Ebbs and flow are apart of life; sometimes you can’t do anything about them except sit back and watch the carnage.
Stock market crashes are scary. No one knows when the market will drop (or by how much).
The only thing you can do is continue to inform yourself. Investing is never betting, that is unless you don’t educate enough. Prepare yourself and your portfolio as best you can. After that, brace for impact.