The stock market has always been subject to volatility, but this past year has been a particularly wild ride.
After the market experienced one of the worst crashes in history last March, it almost immediately rebounded into a remarkable recovery. In fact, since the market bottomed out last spring, the S&P 500 has earned unprecedented returns of close to 100%.
The stock market is famous for its volatility, though, so it will probably experience another downturn at some point in the future. While nobody knows when, exactly, that will happen, it's never a bad idea to start preparing now. If the stock market bubble does burst, here's what I'm doing to be ready for it.
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1. I'm only investing money I won't need anytime soon
It can be daunting to continue investing when the market dips, but investing consistently is key to building long-term wealth. If you stop investing every time the market may be on the verge of a downturn, you're limiting your earning potential.
However, it's important to make sure you're not investing too much right now. A general rule of thumb is to avoid investing any money you may need for the next decade or so, and this is even more crucial when the market is shaky. The last thing you want is to have to sell your investments after stock prices have fallen, locking in your losses.
As you're investing, think about whether you may need that money in the foreseeable future. Make sure all your bills are paid and you have a healthy emergency fund with at least three to six months' worth of savings. This way, you can leave your money invested until the market eventually recovers.
2. I'm double-checking my investments
If you're investing in the right places, a market crash shouldn't affect your long-term strategy. Strong companies are more likely to survive market volatility. As long as you don't sell your stocks during a downturn, your investments should be able to ride out the storm.
Not all stocks are strong investments, though. Some companies have shaky fundamentals and may not be able to pull through a market crash.
Right now, then, is a good time to double-check that your portfolio is as strong as possible. Go through your stocks and see if there are any that are no longer as healthy as they once were, and consider whether they're still a good fit for your portfolio. It's better to find these questionable investments now than wait until their prices fall.
3. I'm reminding myself that investing is a long-term strategy
Whether you're new to the stock market or have been investing for decades, market crashes can be intimidating. Nobody likes to see their investments fall, especially when you may have spent years building a robust portfolio.
In times like these, it's important to remember that crashes are normal, and it's extremely likely that the market will bounce back. Over the last century, the stock market has experienced countless downturns. Yet regardless of how severe they were, it's recovered from every single one of them while still earning positive long-term returns.
Nobody knows whether the stock market bubble will soon burst, but the good news is that it's almost guaranteed to recover. By buying solid stocks and staying invested for the long haul, your portfolio will be able to survive whatever the market throws at it.
