IInvesting in the stock market is one of the best ways to build wealth, but it can sometimes be nerve-wracking, especially when the market is volatile.
The market has been on a rollercoaster ride so far this year, and there’s a chance a crash is on the horizon. There is a lot of uncertainty in the world right now, and sometimes uncertainty leads to greater volatility in the market.
To be clear, no one knows when or if a crash will occur. But I do a few things to prepare just in case.
1. I continue to invest
Stock market crashes can be daunting, but they can also be fantastic buying opportunities. Stock prices are lower during downturns, which means you can stock up on quality investments for a fraction of the cost.
Regardless of what happens with the market, I will continue to invest as usual. If stock prices fall, I will take the opportunity to invest at a discount. Strong investments are likely to recover from even the worst downturns. So when prices inevitably rebound, you will reap the rewards.
2. I only invest money that I won’t need anytime soon
While market downturns can be a great opportunity to buy, it’s important to make sure you don’t invest more than you can afford.
Crashes are one of the worst opportunities to withdraw your investments because stock prices are at rock bottom. If you invest all your money in the stock market, prices fall, and you realize you need that money, you may sell your investments for much less than you paid.
Before investing anything, I check that my emergency fund is strong enough to cover any unexpected expenses. Also, I only invest money that I won’t need in the foreseeable future so that I don’t have to worry about withdrawing my savings in a downturn.
3. I double-check my wallet
The investments in your portfolio can make or break your strategy, as not all stocks can survive market volatility. This is the perfect opportunity to check that your portfolio is diversified and full of solid investments.
Ideally, you should invest in at least 25-30 stocks from multiple sectors. Or you can choose to invest in mutual funds or exchange-traded funds (ETFs) that offer built-in diversification by including a wide variety of stocks.
Whether you’re investing in individual stocks or funds, make sure every investment deserves a place in your portfolio. If you own a lot of stocks with fragile fundamentals, your portfolio may have a harder time surviving a downturn.
4. I keep a long term vision
The stock market is unpredictable in the short term, but it has consistently delivered positive average returns over the long term. For this reason, I’m not too worried about how the market will behave in the coming weeks or months. On the contrary, I try to stay focused on its performance over the decades.
Even the worst stock market crashes are only temporary. As long as you invest in the right places, chances are your portfolio will recover eventually. In the meantime, do your best to avoid dwelling on day-to-day market fluctuations and instead focus on its long-term performance.
The future of the stock market is uncertain, but that doesn’t mean you can’t be prepared. With the right strategy, you can rest easier knowing you’ll be prepared for whatever comes your way.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.