You're not alone if you think another stock market crash is on the way. Over half of CFOs expect the Dow Jones Industrial Average will plunge as low as it did in the March market sell-off, according to a CNBC survey.
There are several reasons to be pessimistic. The economic aftermath of the COVID-19 pandemic is still unfolding. Some healthcare experts warn that another wave of the viral outbreak could hit in the fall. Unemployment is likely to remain high, affecting overall consumer spending.
But there's no need to despair if you're an investor who's worried about the stock market. Here are three specific things you can and should do right now to weather the storm.
1. Accumulate cash
It's smart to have a nice cash stockpile to be prepared for the next stock market downturn. There could be plenty of attractive bargains to buy if the market falls again as much as it did in March.
Does this mean you should sell stocks that you currently own to raise additional cash? Not necessarily. If you still believe in the long-term business prospects for the companies, hold on to the stocks. You're not going to be able to time the market except through pure luck.
On the other hand, if you have any stocks in your investment portfolio for which you've lost confidence selling now isn't a bad move. One good reason to sell is if your underlying assumptions about a stock's long-term growth prospects are no longer valid. The important thing here, though, is don't sell a stock just because you suspect a crash is on the way; sell because the business isn't worthy of your investment anymore.
But you definitely should continue setting aside money to be able to invest later. If you don't already follow this regular practice, now is a great time to start.
2. Make a watch list
Another thing you can begin to do immediately is to make a watch list. Start identifying the stocks that you'd love to buy if they were priced at a discount.
One stock that I have at the top of my watch list is Fastly (FSLY -0.59%). Unfortunately, I didn't scoop up shares in March when the tech stock plunged more than 50%. Since then, Fastly's share price has more than quadrupled. If I have the opportunity to buy shares of the edge computing specialist on a dip, I won't miss out on a second chance.
Keep in mind, though, that your watch list doesn't have to be limited only to stocks that you don't own. Some of the stocks that are already in your portfolio could be even more attractive than stocks that you haven't bought. Most of my personal watch list is made up of stocks that I already own but would like to add to my positions.
3. Buy stocks
You might think this sounds like a crazy idea but buying stocks right now is still a smart move even if another stock market crash is coming. The key, though, is that you should buy shares of companies that are resilient to factors that could prolong a stock market downturn such as an economic recession or a more severe coronavirus outbreak.
Dollar General (DG 0.59%), for example, is one of my favorite virtually recession-proof stocks. Consumers are even more likely to shop at discount retailers during tough economic periods. And the COVID-19 pandemic caused consumers to stock up on staple goods that Dollar General carries. Dollar General is the kind of stock that can perform well regardless of what happens at the macroeconomic level.
Vertex Pharmaceuticals (VRTX -1.01%) is another stock that's worthy of consideration even if a stock market crash is around the corner. The big biotech's cystic fibrosis (CF) drugs will be prescribed by physicians and paid for by governments and insurers whether or not there's a recession or a second big wave of COVID-19 outbreaks.
The company enjoys several tailwinds right now. It's expecting European approval of new CF drug Trikafta, which has already generated massive sales in its U.S. launch. Vertex has secured key reimbursement agreements for its other CF drugs that should boost revenue in 2020 and beyond. The biotech is also making progress with several clinical programs. Good news from clinical trials would provide additional catalysts for the stock.
If you're wrong
Those CFOs in the CNBC survey could be wrong about another stock market crash. So could you. It's quite possible that the market keeps on chugging along despite the uncertainties caused by the COVID-19 pandemic. The great thing, though, is that following the three steps listed here should still enable you to win over the long run even if worries about another crash prove to be unwarranted.