The Best Ways to Prepare for a Stock Market Dive

The Best Ways to Prepare for a Stock Market Dive
If you’re a savvy investor, then you know how to mitigate risk. As someone who keeps there eye on the stock market, you know that it can go through its fair share of ups and downs – sometimes both within the same week – and can even crash from time to time. That’s why you want to be prepared when it happens again.

Here are some of the best ways to prepare for a stock market dive.
Buy Bonds

It’s likely, though not certain, that bonds will go up in value as stocks decline during a stock market setback. If the economy hits a period of deflation or stagflation, you could see bonds become very attractive investment opportunities, giving you an excellent hedge against any stock market losses.

If you’re trying to reduce unsystematic risk with a financial strategy that will prove successful during the next stock market dive, consider boosting portfolio’s percentage of bonds.
Invest in the Right Stocks

Even during stock market crashes, there are a few stocks that shine like a diamond in a mud puddle. If you manage to latch on to shares of those companies when the market tanks, you could survive the hard times and even make a profit.

So what’s the best stock to buy when the market goes south? Consider real estate investment trusts (REITs). They’re known to perform well during periods of rising inflation. That way, even if your other stocks take a hit and your bonds take a hit, you’ll still have some money parked in an asset class that should weather the difficult storm.

Also, look for companies in the basic materials sector to perform well during rising inflation. Companies that mine gold, silver, and copper should all increase in value during inflationary periods.

Cash Is King

You won’t earn any return by hanging onto cash, but you will have some money in your hands in the event that things turn really sour.

Also, consider keeping cash under the proverbial mattress if you’re really concerned. Although you might think your money is safe in the bank, it’s not likely that you’ll be able to retrieve it in the event of a severe stock market crash. The FDIC might have very good intentions about insuring your bank account, but there are few insiders who believe that it can really pay all depositors the money they’ve lost if there’s a run on the banks. The best thing for you to do, if you’re thinking that another Great Depression is on the way, is to put your cash in a locked fireproof box and don’t tell anybody about it.

If you’re not thinking that things will get close to an apocalypse, then by all means keep your cash in a savings account. When the crash hits, consider using some of that money to buy stocks that have suddenly become bargains. The stock market tends to bounce back, after all.

You’re smart for wanting to prepare for a stock market crash. It will certainly happen again at some point in the future, even if nobody knows when. Be sure that you’re ready and you’ll be in good shape when the market takes a nosedive.

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