The scary thing about stock market crashes is that they can happen when we least expect them to. And the choices we make before and during a market downturn can spell the difference between losing money and coming out unscathed.
I can't tell you when the next stock market crash will hit. But what I can tell you is that I'm planning to employ these important strategies to get through it.
1. Doing nothing
I'm the type of person who has a hard time sitting around. I tend to always be working or on the go in some capacity, so sitting back and doing nothing isn't an approach I tend to take to life.
But when it comes to stock market crashes, I think it's the perfect approach. Investors only lose money during market downturns when they sell stocks at a loss. Those who don't sell don't lose a thing. It's that simple.
It's for this reason that I plan to do nothing when stock values next fall. Since my plan isn't to cash out those investments for many years, there's no reason to touch them when a bout of volatility strikes.
2. Boosting my emergency fund
I happen to have a pretty solid emergency fund — enough to cover around a year's worth of expenses. Most people would say that's more than adequate.
But I know myself — I tend to be pretty financially insecure in general. And that insecurity can come to a head when stock values plunge. So to help me keep my cool, I plan to sneak a little extra money into my savings account. It won't be a ton, but it'll give me some added peace of mind.
3. Making sure my portfolio is diverse
I pride myself on owning a nice, diverse mix of stocks. But sometimes, as investment values change, it's possible for your portfolio to skew toward a specific sector. For example, if your tech stocks outperform your other stocks, you could land in a situation where you're suddenly a bit over-invested in tech.
That's why I perform regular portfolio checkups, and I plan to do another one soon. If I find that I need to mix things up, I may seek to either add a few individual stocks to my personal mix or buy some broad market ETFs (exchange-traded funds), which actually require less research.
In fact, I happen to have my eyes on the Vanguard S&P 500 ETF (NYSEMKT: VOO). That particular fund will effectively allow me to invest in the entire S&P 500 index — again, without having to really do any research.
Make sure you're ready
Will the next big stock market crash happen this year? Next month? We just don't know. But if you want to get through it without hurting yourself financially, then it's important to prepare in advance.
Keep in mind that some of that preparation may be mental. But if you put in the time now, you're more likely to manage well when the next major downturn hits.
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