I’d take these 3 steps to get ready for another stock market crash


I’d take these 3 steps to get ready for another stock market crash

The recent stock market crash may have been followed by rapidly-improving investor sentiment, but a number of risks continue to face the world economy. For example, geopolitical tensions in Europe and the US, as well as continued growth in the number of coronavirus cases, could cause investor sentiment to weaken in the coming months.

As such, investors may wish to hold some cash so they can take advantage of buying opportunities. Through identifying the most attractive stocks available today, as well as reassessing your portfolio holdings, you may be able to build a solid portfolio of stocks for the long term.

Cash holdings
Having cash available to invest during a market crash can put any investor in an advantageous position. They may be better able to capitalise on low valuations that may prove to be temporary in nature.

As such, having some cash within your portfolio at the present time could be a shrewd move. As mentioned, a number of risks continue to face investors that could lead to a decline in stock prices. This could mean that avoiding being fully invested in shares provides the capacity to take advantage of buying opportunities, as well as peace of mind.

Clearly, holding cash for the long term is unlikely to produce desirable returns. However, having it on hand during periods of market volatility, and with the prospect of a second market crash on the horizon, may be a logical move.

Identifying attractive stocks ahead of a market crash
As was the case in the recent market crash, share prices can quickly rebound after a decline. This means long-term investors may only have a short window to take advantage of undervalued opportunities.

READ  Trump criticises Apple's encryption stance on Pensacola phones

Therefore, identifying the stocks you’re positive about prior to a decline for the stock market could be a sound move. It may enable you to react more quickly to a fall in share prices, since you’re likely to know which companies in specific sectors may be worth buying when their prices include wide margins of safety.

Assessing your portfolio holdings
Similarly, assessing your portfolio holdings prior to a market crash could be a sound move. For many stocks, their outlooks have changed dramatically since the start of the year. As such, their investment appeal may have altered materially.

This could mean that now’s the right time to sell them in order to provide the opportunity to reinvest in stronger businesses should they trade at more attractive prices.

Of course, this doesn’t mean you should avoid a buy-and-hold strategy. Over time, the stock market is likely to recover from any future market crash. But by holding the most attractive stocks from a risk/reward standpoint, you can generate high returns in the long run.

The post I’d take these 3 steps to get ready for another stock market crash appeared first on The Motley Fool UK.

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020

First published on The Motley Fool

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

READ  Boeing 737 MAX deliveries in limbo after deadly crash - sources

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





READ SOURCE

LEAVE A REPLY

Please enter your comment!
Please enter your name here