How To Avoid Stock Market Crash
- Set yourself to avoid the crash
The first and most important thing to do is prepare yourself to avoid the market crash from affecting your investments. To do this, sell off all your short-term investments, including your diversified portfolio. You can keep long-term investments that are going to yield profits after a couple of years, say in the following 10-20 years. This way, you can minimize the impact of the stock market crash on your investments through the market is on its knees.
Look for signs when the market is about to crash
Expert stock market researchers quote the market crash does not happen overnight quite often; it’s only a few instances. There are always a few signs and indications when the market is set to crash, and as a stock marketer, it is important to note such signs. Most of the time, these are signs are related to geopolitical and disease-related issues and lately the instability in economic situations. The geopolitical changes and tensions can affect the businesses and directly impact the stock market; in some cases, they also lead to situations such as a stock market crash. If you are observing the rise of geopolitical issues, it is best to sell short-term investments. Disease outbreaks have been the biggest example and lesson for young stock marketers; COVID19 has made an impact, and in the first wave, the stock market had majorly dipped and but not completely crashed. It is best to sell the short-term investments when you have a piece of confirmed news related to the disease outbreaks or newer impacts related to it.
Set Stop Loss
Most of the young stock marketers have considered the stop loss tool seriously, which is a good thing. A stop loss is a bar on the graph below, which indicates to stop trading if the price drops below that particular bar or point. We have always stated the stock market is highly volatile, and if one needs to book maximum profits, it is important to play it smart. A stop-loss order helps you in managing the stocks and supports your tactical thoughts more than emotional ones. Once set, if the price drops below the bar, the trade is closed for you, and you will be left with some profit at least. Additionally, when the market is about to rise above the stop loss bar, you can reinvest and buy the stocks. The stop-loss order is best to minimize the impact of a stock market crash by closing the trading for you. So, if you are unable to manage huge stocks during the early signs of a stock market crash, it will carry out the trade for you even before the market crashes to its knees. We believe it is one of the best options. Besides, there are two types of stop-loss that will help you manage the trade in the stock market within your financial stability.
Investing in Defensive / Non-cyclical stocks
Investing in defensive or non-cyclical stocks is one of the best options as these are products that are in regular demand. These are the products that the consumers will not discard from their everyday life; a few examples are soap, shampoo, food, toothpaste, everyday utilities such as electricity, and more. Such products are in regular demand and are not majorly impacted by the downhill of the stock market. During the crash, you can expect a minimum effect on such stocks, and even if there is a major impact, these stocks will rise again due to their demand in consumers. Besides, the company manufacturing such products are now converting such goods to be more luxury which increases their demand in the market and makes the customers helpless to buy them.
Don’t put all your eggs in the market
As Warren Buffet has quoted, “Don’t put all your eggs in one basket,” which is a relative quote to investments; it is true to cent percent. The stock market is volatile, and investing everything in the market would not be a good decision. There are several options, such as investing in real estate, investing in emerging technologies and startups, building assets, and more. Instead of going all-in for the stock market, diversify your portfolio outside the stock market too. This way, even if the stock market crashes tomorrow, you still have a source of income, such as an asset that will help you live while the stocks rise up again.
The stock market is volatile, and no one can remove the volatility and make it stable; it is in its nature to be. This also means trading cannot be possible in one direction only; if the market can rise, it can fall too, and in such a case, it is best to be ready with remedies before the hit. There are some possible ways, such as stop loss and defensive stocks, which are logically helpful in avoiding the impact of a stock market crash.