Though stock values have dropped at several points in the course of the past year, for the most part, 2021 has been a solid one for investors. And while many experts believe that the next stock market crash is right around the corner, I'm not convinced.
Right now, stock values are high, and that alone could lead to a near-term correction. But that doesn't mean the market will completely tank.
Furthermore, stock values have been high for a long time now, and while the market definitely took a tumble in March of 2020 when the pandemic first hit home, it recovered fairly quickly. And so if stocks do crash in the coming year, that downturn may be short-lived.
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Either way, though, I think it's important to always be prepared for a stock market crash -- even if you're not lying awake at night worried that the next one will strike any day. And so now that we've reached the tail end of 2021, here are some moves I'm making in the coming weeks to gear up for potential turbulence in 2022 -- whether it comes to be or not.
1. Sneaking a little cash into my emergency fund
It's always a good idea to have a solid emergency fund -- enough money in the bank to cover three to six months of essential living expenses. That way, if you lose your job or encounter some unplanned bills, you'll have cash reserves to tap without having to land in debt or liquidate stocks to scrounge up the money.
Right now, my emergency fund is looking pretty robust, especially since I have about a year's worth of essential expenses on hand in cash. I tend to overfund my emergency savings because doing so gives me peace of mind as both a self-employed worker and an investor. And so between now and the end of the year, any money I don't spend on holiday expenses or other obligations will probably go into my savings so it's there for me just in case.
2. Making sure my portfolio is nice and balanced
A diverse investment mix could be just the thing to help you get through a stock market downturn. And so I'm planning to do a thorough review of my investments and make sure they're as balanced as I'd like them to be.
When you own stocks (or other investments), their value can rise and fall, leading to a scenario where you may be more heavily invested in a single market segment than you'd like to be. So my plan is to make sure that hasn't happened in my portfolio, and if I need to do some rebalancing, I'll make that move before stock values tumble.
3. Putting together a wish list of new stocks to acquire
It's easy to look at a stock market crash as a negative thing. But I like to view these events as buying opportunities.
In the past year, I've struggled to add to my portfolio because stock values have been so high. If they fall in the coming year, I want to be ready to pounce. And so I'm researching some companies now so that I'll be prepared to buy shares should the opportunity present itself.
Hope for the best but be prepared
Sitting around worrying about a stock market crash is not a good use of your mental energy. At the same time, though, you never know when things might take a turn for the worse. This especially holds true during these uncertain times as a pandemic continues to rage.
By boosting my cash reserves, balancing my portfolio, and strategizing about future investments, I'm empowering myself to deal with whatever stock market turbulence comes to be in the coming year. And doing the same may really work to your benefit.
