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Stocks May Be Going on Sale -- Here Are 3 Ways to Capitalize

By Maurie Backman – Oct 21, 2020 at 1:18AM

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A stock market downturn could open the door to a serious buying opportunity.

Will the stock market crash following the November election or perhaps in the weeks leading up to it? That's the big question on every investor's mind right now.

While the idea of a stock market downturn can be unsettling, that scenario actually isn't as bad as it may seem because it creates opportunity for investors to scoop up quality stocks on sale. If you're eager to take advantage of a potential market crash, here are three different ways to do so.

1. Load up on index funds

When the stock market experiences turbulence, stock values tend to fall. And if you're not sure which ones to add to your portfolio, buying index funds is a good bet.

Index funds take the guesswork out of investing, especially if you opt for S&P 500 index funds, which give you exposure to the broader market. Index funds are also a great way to diversify, and that's important during periods of volatility.

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Image source: Getty Images.

2. Buy fractional shares

Given that the economy is still stuck in a recession, you may be hesitant to sink a lot of cash into stocks right now. This especially holds true if your emergency savings aren't all that robust or you're specifically worried about losing your job in the coming months. If that's the case, you can still benefit from a stock market downturn by investing in fractional shares.

Fractional shares let you buy a portion of a share of stock rather than a full share. The upside is getting to invest in companies whose share prices may be financially out of reach. These days, you can generally invest in any S&P 500 stock on a fractional basis, so it's a good option to consider if you're not looking to spend a lot.

3. Add stocks to your portfolio that lend to diversity

A diverse portfolio is the key to growing wealth while protecting yourself against market downturns. If stock values fall in the coming weeks, it pays to look at adding companies that represent a market sector you're missing in your portfolio. For example, if you don't own many tech stocks right now, it could pay to buy some once they become more affordable.

Take advantage of turbulence

To be clear, we don't know if the stock market will tank, hold steady, or even gain value before, during, and after the upcoming presidential election. But it's important to be prepared in the event that things take a turn for the worse by going in with a strategy to capitalize on lower stock values. At the same time, it never hurts to remind yourself that a little post-election volatility is really nothing to stress about.

Though it can be unsettling to see your portfolio value decline, the stock market tends to react to political news, but it also has the potential to recover fairly quickly in that situation. What you should therefore aim to do is buy stocks at a discount while you can, rather than expend energy worrying about what could be just a temporary blip.

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