Stock market crashes can be frightening, but there are ways to be ready for them. While it’s tough to confirm whether the market is about to slide, strengthening your portfolio will help you anticipate it.
Whether a market crash is looming, you need to protect your investments. Here are three simple ways to help your portfolio have a better chance of surviving a market crash.
Don’t Withdraw All Your Money
Withdrawing all your money from the stock market during a decline can be more detrimental to your portfolio than beneficial. Volatility may be worrying, but it’s a normal occurrence in the markets and does not always signal that a crash will happen.
The market has an unpredictable nature, making it nearly impossible to predict correctly when a crash may occur. But once it takes place, stock prices would have significantly declined, and pulling your money out will only guarantee losses.
That is why you’re better off staying invested regardless of the market’s state.
Stock prices can sometimes drop consecutively for days, although they typically recover as quickly as they go down. So if you decided to sell your stocks after prices took a dip, and those stocks bounced back right away, you could miss out on a profit opportunity.
Moreover, selling when prices are down can make you lose money on your investments, as you’re selling the stocks at a price lower than what you paid to buy them.
Stay Invested in Strong Stocks
By looking at a stock’s long-term potential, you’re allowing your portfolio to weather market turmoil.
A portfolio with well-performing stocks makes it easier to hold your investments during challenging times, as they have a better chance of getting through volatility. Their prices are also more likely to recover once the market climbs back up.
See if all the stocks you currently have in your portfolio are still strong. You can check a company’s financial records, leadership, and competition to help you determine whether its stock remains in excellent condition.
Note that the best investments can stay strong for many years and even decades. The firm doesn’t have to be the thrilling, popular type or one that is growing at a remarkable pace to be considered a wise investment choice.
Opt for Index Exchange-Traded Funds (ETFs)
You can invest in index ETFs if you’re having a tough time researching and going through the information about individual stocks. Index ETFs are a set of stocks that mirror the performances of specific stock indexes, making their odds of surviving market volatility better.
The S&P 500 ETF, which follows the performance of the S&P 500 index, consists of 500 stocks from some of the US’s biggest and most stable companies.
It is one ideal ETF investment option, as the S&P 500 has dealt with several ups and downs over the years, and it has always bounced back from even the harshest crashes. Furthermore, this US index has earned an annual return of about 10% since its founding.
That means the S&P 500 was able to generate positive returns over time, despite the market crashes it went through. Therefore, if you invest in the S&P 500 ETF, you may receive positive average returns.
