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With Most Investors Concerned About the Stock Market, Here's How to Prepare for Another Crash

By Christy Bieber – Aug 17, 2020 at 9:31AM

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Investors aren't feeling very confident about the stability of the stock market. In fact, according to research from Principal, 32% of consumers are very concerned about market volatility in 2020, up from 23% in 2019. Americans are also thinking more about market risk, with 70% spending more time worrying about volatility, compared with just 20% who haven't changed their attitudes from last year. 

Consumers are right to worry that the market could see unstable prices, and even take a major tumble again. After all, investors saw substantial losses in March. And while the market has largely recovered from the coronavirus-driven crash, it could happen again any time -- stocks may still be overvalued, the country is in a recession, and COVID-19 cases are spiking again.

If you're one of the investors concerned about the state of the market, there are some options for you. In fact, here are a few key steps to take. 

Man with money flying out of wallet.

Image source: Getty Images.

1. Make sure you have the right asset allocation

Smart investors maintain an appropriate mix of stocks and bonds to make sure they take on a reasonable level of risk. However, throughout much of the 2010s, many people became complacent due to the lack of market volatility, and stopped rebalancing their portfolios. As a result, millions were over-exposed to stocks when the coronavirus crashed the market in March of this year. 

Those who sustained outsized losses due to the crash happened to get lucky, because the market rallied quickly, allowing many investors to recover most or all of their money in a matter of months. You probably won't get so lucky again any time soon. To make sure you're well-prepared if there's another downturn, now is the time to rebalance your portfolio so you'll have the right investments for your age, risk tolerance, and investing timeline.

Not sure how to do that? One easy approach is to subtract your age from 110 and invest that percent of your portfolio in equities.  

2. Review your investment strategy

With a sound investment strategy, recessions and market corrections aren't something to be feared -- they present opportunities. But while smart investors can make money over time no matter the market conditions, those without a sound strategy may do fine riding the wave in a bull market, but get hit hard by a crash.

To avoid finding yourself stuck holding stocks that aren't likely to recover from a downturn, review your investment approach to ensure you're invested in businesses you understand and believe in. Having confidence in your investment strategy can also protect you from panic selling if share prices start to fall, which is one of the worst things you can do since it locks in your losses. 

3. Commit to thinking long-term

Buying stocks for a short period of time and benefiting from quick profits when the price goes up can seem like a great way to make a quick buck -- if and when it works. And indeed, some people do well day trading or actively trading stocks for a short period of time. But for most people, this won't work consistently, and it will likely lead to substantial losses eventually. 

Instead of purchasing shares with the hopes they'll rise quickly so you can sell them ASAP, opt to invest for the long-term in businesses you believe will stand the test of time. Making solid investments in strong, stable companies should help you to build wealth even through market cycles. 

If you aren't sure how to invest in stocks for the long-term, you can also just put your money into index funds and leave it to grow over decades. Betting on the S&P 500 index is as close to a sure thing as you can get, and it's what Warren Buffett recommends most investors do

4. Consider investing more if the market crashes

Finally, if the market does crash again, consider supercharging your investments and buying more shares of businesses you believe are poised for future success.

Many smart investors have earned generous returns and beat the market by investing more during troubled times, and having the patience to hold on until the inevitable market rally.

Don't spend your time worrying about the state of the market

Stressing about stock market volatility is a waste of time. The market will rise and fall, and inevitably crash again -- but it has always recovered in the past, and will do so again in the future. 

The keys are to make sure you aren't exposed to too much risk, to invest for the long-term, and to choose investments you're confident in. If you do that, there's no use worrying, because you're setting yourself up to have a portfolio that will almost assuredly perform well over time. 

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