Many economists are saying that after an exuberant stock market rally, now is the time to take heed that the stock market has not crashed for many years. According to the seasonal charts, stock market crashes occur about every 8 or 9 years, so since the last panic sell off in the stockmarket was 2008, we are now overdue.
There will come a point where the music will stop for investors and people will panic to get out of the stock market. Of course we do not know when, or even how, we just know if you study the stock market, the sell off and crashes almost always happen when people expect. No one really likes them, but just know they do occur. There is no real reason to panic; we just have to be aware of the stock market environment anyway.
If you can admit stock market crashes do actually occur and the next one is coming, that is a positive sign and you can move on and protect yourself the right way. As humans we must recognize that in good times, we must always be willing to prepare and save for the difficult times.
No one can predict the timing of a market correction. They are sudden, even the crash of 1987 came without much warning.
Here are several ways you can protect yourself in case a stock market crash does occur.
- Bear Markets Do Actually Occur.
Yes the stock market is an entity unto itself. Markets go up for a period of time, and then they go down. What happens to people is that after a period of the market going up for several years, they buy in, hoping this trend will continue only to lose out, as the trend changes, and they become hopeful the rally will continue. You must realise Bear markets can occur for weeks, months or even years.
- Follow a 5-Year Rule
A good rule is not to listen to idiot investors and never invest money you are going to need over the next 5 years. That is a big no no. This is important advice for people who are going to retire, and who are also counting on their investments for daily expenses. You want to try to avoid this situation all together, if you can. Retirees who have to sell stocks and bonds during a bear market to meet their living arrangements are not really going to live a very good life. So learn to plan ahead.
- Keep Out of Debt
This may come as a surprise. But it has nothing to do with investing. As humans we manage finances without much care at all. If you put a lot of money in the stock market, and it falls 20% and you lose a significant amount of money, and you are already in debt. This is going to add to your problems as you get older. Especially if you are already in huge amounts of debt.
In my experience people who have little debt, relative to how much they earn, are more likely to weather from a volatile stock market or a bear market or god forbid a horrific crash, where the market might drop say 20%. Ensure you are keeping debt to a minimum before putting a blindfold on and lumping cash in the market.
In the end, you have to remember no one is a psychic. No one knows when the bottom of the stock market will occur and the exact top. If you try to buy at the bottom and sell at the top, prepare to be ruined as an active investor.
What you can do this year, is to simply educate yourself on market cycles, and read literary works from market timing authors that could help you be more in tune with what is happening with the stock market or global markets. This will help keep you in check if a downturn was to occur and you’ll be in a better position to take proactive steps.
Normally, if you are an active investor you must remain calm, and realise that over time the stock market is designed to go up, and not down. But also remember the stock market never goes up in a straight line and you must be able to work around an event like the stock market being cut in half during a bear market. While that situation is quite extreme, it simple comes back to the saying on Wall St – “prepare for the worst, but hope for the best” if you do this, you will be able to make money in the global markets 12 months of the year. Both in the short term, and the long term.
Copyright 2016 Economic News Articles