Nobody wants to think about stocks crashing in 2020 the way they did back in March, but the reality is that we just don't know what the pandemic has in store. If cases skyrocket, or there's bad news on the vaccine front, stocks could react negatively.
As someone who's been investing throughout this ordeal, I'm concerned about another market crash -- but I'm also preparing for one. Here's how.
1. I'm boosting my near-term cash reserves
We're in a recession. That means job security is out the window. As such, I'm making a point to stockpile more cash so that if my workload declines, I'll have cash reserves to tap when my bills come due.
I'm also spending less during the COVID-19 pandemic. I'm filling up my car once or twice a month instead of once or twice a week, I'm not going out to eat as often as I used to, and the only vacations I'm planning are camping trips that cost virtually nothing. My plan is to take some of that unused money and put it in the bank. If I need the cash to pay bills, it'll be there, and I won't need to touch my investment portfolio to access money if my income declines.
I'm also boosting my cash pile so that if the market tanks, I'll be able to scoop up quality stocks at a discount. That was a strategy I employed throughout March and April, and it allowed me to buy a few stocks on my personal watch list that were previously too pricey for my liking.
2. I'm taking a deep dive into my investment portfolio
Since we don't know what the rest of the year has in store for the stock market, I'm examining my portfolio and making sure I like what I see. Specifically, I'm looking at a couple of key areas:
- Diversity: Having a wide range of stocks is always important, but it's especially so during a recession. I'm trying to ensure I'm not overly invested in a single market segment.
- Losing investments: Some companies underperform from time to time. I'm keeping an eye on the underachievers in my portfolio because I might try to sell them at a loss. That way, I can use the freed-up money to buy stocks with better potential if values on a whole nosedive. Also, taking a loss might actually help me from a tax perspective.
To be clear, I assess my portfolio fairly often no matter what, but because a stock market crash is on my radar, I'll pay extra-close attention this time around.
Hope for the best, but prepare for the worst
I can't predict what the rest of 2020 has in store for the stock market. That's why I'm willing to sink some time and effort into being prepared.
Would I love to take a couple of weeks off from cooking and order takeout every night? Absolutely. But I also know that saving more money right now could serve me well if the market takes a serious turn for the worse. While it would be easier to just assume my portfolio is in solid shape, spending time on it could set me up to better withstand another downturn.
Of course, I hope the stock market will end the year strong; 2020 owes us at least that much. But I also want to be prepared in case the opposite ends up happening.