Make no mistake, a market crash or major correction is coming! I don’t know when or how big it will be but I do have some ideas for how to survive.
The current US-led bull market in stocks started way back in 2009 (twelve years ago) and was only temporarily punctuated by the coronavirus correction in March 2020. A major crash is coming but I can’t say when or how big it will be. However, I can suggest some ways to prepare.
What Is a Market Crash?
Investopedia defines a market crash as “a sudden and significant decline in the value of a market.” Although there is no numerical definition of a crash, Wikipedia suggests that the term “commonly applies to declines of over 10% in a stock market index over a period of several days”. If prices decline more slowly over a longer period of time, it’s a “bear market” rather than a crash.
How Can You Prepare for a Market Crash Right Now?
There are at least five things you can do as a market participant: buy, sell, hold, sell short, or sit on the sidelines. Each of these could have a part to play in surviving the next market crash.
-
Buy: It’s a brave investor who buys when a crash is coming, but you’ll lose no money if the market rises by another 20% before it crashes by 25%. Mitigate your downside risk with a protective stop order.
-
Sell: I’ve already exited the equity investments in my retirement account, so my potential loss is only the opportunity cost of not benefiting from any rise before the fall.
-
Hold: You could simply hold your existing investments to collect any dividend income irrespective of the markets’ up and down movements.
-
Sell Short: I’ve already suggested shorting US indices as a way to benefit big from a coming crash but this technique is definitely not for amateur investors.
-
Sit on the Sidelines: If you’re not currently invested, you could stay on the sidelines but still open a demo account with a broker to gain valuable experience until the time is right to invest.
Markets Price Targets
I don’t want to scare you but the Dow Jones Industrial Index lost 90% of its value in the three years following the 1929 Wall Street Crash, the DJIA fell by almost 23% in one day in the Black Monday crash of 1987, and the stock market lost more than 50% of its value in 2008. Don’t get me started on the dot-com crash.
Where Can You Take Market Crash Survival Action Today?
To buy stocks or stock indexes, or to sell them short, you’ll need a broker. To practice in a demo account, or to fund an account ready to pick up some post-crash bargains, you’ll need a broker. These are the best brokers we know:
Pepperstone
Pepperstone was founded in 2010 in Melbourne, Australia by a team of experienced traders with a shared commitment to improve the world of online trading. Frustrated by delayed executions, expensive prices and poor customer support, they set out to provide traders around the world with superior technology, low-cost spreads and a genuine commitment to helping them master the trade. Their mission is to create a world of tech-enabled trading where ambitious traders can embrace the challenge and opportunity of global markets.
Register with Pepperstone instantly
eToro
eToro is one of the world’s leading multi-asset trading platforms offering some of the lowest commission and fee rates in the industry. It’s social copy trading features make it a great choice for those getting started.
Register with eToro instantly
Credit: Source link
