The stock market could hit record highs one day, and crash the very next. While there’s no certain way to time the market, there are things you can do to safeguard your investments if you believe the market is heading towards a downturn.
Assess What You Own
The first thing you should do if you believe the market is due for a correction is to take stock of your investment portfolio. Many people who do this will find that they have invested more in equities than in bonds and cash. While the market is likely to pick up in the long run, you should take your risk appetite and goals into consideration when assessing what you own and make adjustments accordingly.
Liquidate Risky Assets
If you sense a market crash, you may want to sell positions that are extremely volatile or ones with new business models. While it’s not wise to sell all your investments, you may want to consider selling only the riskiest investments in your portfolio.
Continue Investing
Don’t stop investing in your 401(k) or taxable account because you fear a market crash. A bear market is generally always shorter than bull markets, due to which your investments will pick up again. That said, it’s wise to avoid making investments with any money you may need within the next five years. So, this is a great time to check whether you have an emergency fund in place to cover your basic expenses for at least two years.
Save Money for Bargain Buys
If the market crashes, you may very well be able to invest in some great stocks that are declining. When the market eventually picks up, you’ll make a substantial gain from these investments.
Avoid Leverage and Debt
Buying stocks on margin is something you should avoid, especially if you think the market is going to crash. Reducing leverage will automatically make your investment portfolio more risk-averse. It’s also a good idea to reduce debt if you have some spare cash in hand since you’ll be able to save on interest payments during a market crash.
It’s best not to lose too much sleep over an impending stock market crash. If you’ve diversified your portfolio and are looking to stay invested for the long-term, there’s a good chance your investments won’t suffer.
