Preparing For The Next Crash

Let’s face it, the stock market unpredictable and ever since the market had a downfall during the 2008-2009 recession, some investors backed out and started playing the waiting game. Waiting for the perfect time to get back into the market. But that time will never come, because it’s impossible to predict when it will do well. While the past five years have seen some positive market returns, could other investors be over-confident in the market?

Panic can play a factor when the market is doing well. Some investors fear a pullback when the market is at an all-time high. However, this only applies to short-term investors and short-term investing really doesn’t do much good. Long term investments can give you investing peace-of-mind no matter what the market does because you aren’t looking for the next investment that might give you a 20% return— you are looking at potential investment returns for the next 5, 10, 15 or 20 years down the road.

Take for instance a $100,000 investment in a well-diversified portfolio of large cap stocks initially made in 1984. If you examine historical stock market data as captured by the S&P 500, an index that measures the market performance of large cap stocks, from then to now, a well-diversified large-cap stock portfolio held from 1984 to now could potentially be worth $2.5 million. It’s similar to a roller coaster with ups and downs, but long term investing provides the greatest likelihood of safety.

Waiting for certainty in the market won’t get you anywhere. Another market crash could happen in the future, which is why you should prepare yourself with long term, diversified investments that offer the potential to survive rough times. The problem isn’t the crash, the problem is the behavior of investors when the crash actually happens. Historically speaking, investors’ first instinct is to sell, which is a panic reaction that doesn’t offer the chance for good results. The general rule of thumb is to buy equities in a down market because they may bounce back with your long term goals. The result can be a massive transfer of wealth from people who panic to people who don’t panic.

Want to learn more about what Mark Matson has to say about the next crash? Watch this video!

*Past performance is not indicative of future results.