Market crashes—big ones, small ones, and everything in between—are inevitable in the global economy. That’s because stocks, bonds, commodities, and real estate tend to cycle through phases in which their values rise, reach a peak, decline, and then bottom out (crash). Therefore, while nobody can accurately predict when or how hard the market will crash, we do know that it will happen at some point. Here are a few tips for getting your financial house in order before the next one hits.
- Carry as little debt as possible. The less you owe to creditors, the more market stress your assets can withstand before requiring a selloff for immediate cash.
- Diversify your portfolio to limit exposure in any single asset class. If you’re heavily invested in stocks and bonds, consider moving some money into gold to hedge against inflation, deflation, instability, and a host of other market woes.
- Don’t risk funds you know you will need for major outlays within the next 3-5 years, including the down payment on a house, college tuition, and similar expenses.
- Keep investing through downturns and crashes to take advantage of lower prices and maximize future gains.
- Make sure that you’re mentally as well as financially prepared to cope with a crash. If you’ve never lost a significant percentage of paper wealth to a crash before, you might end up panicking and making poor decisions rather than sticking out the cycle.
Trying to make specific predictions about market crashes and playing any kind of “timing” game with regard to getting in and out of certain types of investments ahead of peaks and dips is wholly unsustainable as a long-term financial strategy. Instead, reducing your outstanding debts, diversifying your portfolio, hedging against instability with gold, and following the other tips described above are far more effective methods of preparing for a market crash.
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.