Due to the current global market, the pandemic, and the uncertainty that we are living in right now, it’s important to have an investment plan in case of a stock market crash. While it is difficult to estimate whether and when a stock market crash will occur, you can always control your investment choices and make preventive portfolio adjustments. Follow these strategies if you want to be better prepared for a stock market crash.
Re-examine your goals
Look at your current stock portfolio and ask yourself why you invested in the particular stocks you own. Consider the following: Do your goals still align with the corporation’s financial goals and are they still attainable? Are your stocks overperforming, stable, or underperforming? Asking yourself these questions will help you decide, whether you want to keep your stocks, invest in more stocks, or sell a share of your stocks.
Always expect volatility and uncertainty in the market. If you are shaken by small changes in the stock market, it usually means that your portfolio is not diversified, that you have not been in the market long enough, or that you bought your stocks at a high value. Which of your stocks are usually impacted by volatility? Are your stocks more impacted by industry changes or by market conditions? If you would sell a portion of your stocks, what stocks would you buy instead? Look at the current value of your stocks, ask yourself what drop you can afford and at what price you should consider selling. Do your research and follow stock market updates but always differentiate between the noise of online statements and actual financial statements.
If your stocks have already increased in value and you don’t want to risk a loss, automate your sell price. Like you should have a stock purchase target, you should have a stock sell target, this also goes for stocks that you plan to keep for the long-term. Through automation, you would still be able to sell your stocks at a profit in a volatile market environment. Also, consider that sometimes it’s better to sell stocks at a loss, to re-buy them at a lower price, or to buy more stable stocks instead.
Always have cash
In corporate finance “Cash is king.” is a common phrase widely used. Although this phrase is mainly heard in relation to corporations, it should be also replicated to personal finance. Like you should have savings for a rainy day, keep cash on hand for days when the stock market is not performing as expected. Set aside a stock investment budget, money that you save for future stock investments, this way you won’t be using money that was intended for something else. If you invest wisely, a drop in the stock market can become your opportunity to buy stocks you always wanted.
Regardless of the market condition, there are always opportunities in the stock market. Diversify your investments, re-evaluate your stock portfolio regularly, and invest consistently. The longer you have your stocks, the less they will be impacted by volatility, as time in the market impacts your financial growth as well. Despite the uncertainty of a stock market crash, there have always been a noticeable number of financial experts and inexperienced investors that have been able to remain unscathed from stock market losses. Through wise planning and proactive strategies, you can prevent significant losses as well.
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