Think Stocks Will Crash in May? Do These 4 Things Now

When will the stock market crash? That’s the big question on many investors’ minds at a time when stocks are, across the board, pretty overvalued. In fact, if the stock market doesn’t tank completely in the near term, investors should at the very least begin bracing for a correction, where stock values drop 10% or more.

Of course, the idea of a stock market crash can be very scary, especially if you’re a newer investor and you haven’t experienced one before. But rather than allow yourself to get spooked, you’re better off taking action. Here are a few crucial moves to make if you’re worried that May is when the stock market will finally take a major turn for the worse.

Image source: Getty Images.

1. Pad your emergency savings

What does the amount of money you have in the bank have to do with your stock portfolio? A lot, actually. If you secure your emergency fund so you have ample cash to cover unplanned expenses, you won’t have to tap your investments out of desperation. That could, in turn, prevent you from needing to liquidate stocks at a time when their value has dropped substantially.

2. Diversify

A diverse portfolio could help you ride out a stock market crash, so if you’re heavily invested in one or two market segments right now, take the opportunity to branch out — before things take a turn for the worse. Diversifying could simply mean buying stocks in sectors you’re not currently invested in. Or you could load up on some index funds or exchange-traded funds (ETFs) that give you access to the broader market. For example, if you invest in an S&P 500 index fund or ETF, you’ll effectively be putting money into the 500 largest publicly traded companies on the market. It doesn’t get much more diverse than that.

3. Add dividend stocks to your portfolio

Companies that pay dividends tend to do so even when stock values are down. And that’s a good way to hedge your bets. If your portfolio takes a hit, you can offset those losses with incoming dividend payments, and that’s money you’ll have the option to cash out and use as needed or reinvest.

4. Stockpile some cash

Market crashes tend to spell opportunity, and so it’s important to have cash at the ready for when stocks go on sale. While your first priority should be to shore up your emergency fund, if you’re also able to divert some extra cash to your brokerage account, you’ll put yourself in a great position to pounce while stocks are temporarily discounted.

Even if you’re a seasoned investor who follows the market closely, you probably won’t be able to predict exactly when the stock market will crash next. While a May crash is certainly possible, it’s also certainly not a given. But rather than spin your wheels trying to determine when that crash is coming, you should instead focus your energy on checking off the boxes above. That way, you’ll really be ready for whatever is ahead.

10 stocks we like better than Walmart
When investing geniuses David and Tom Gardner have an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and Walmart wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

Stock Advisor returns as of 2/1/20

The Motley Fool has a disclosure policy.

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts
KiBbbc.width .png
Read More

Is It Worth It to Buy Gift Cards at Costco?

Did you know Costco sells gift cards? Members can save money by purchasing them at their local club or Find out if this is a good Costco buy.