HOW TO PREPARE FOR A STOCK MARKET CRASH IN 2023?
If you're worried about a possible stock market crash in 2023, here's what you need to know and how you can prepare your portfolio.
STOCK MARKET CRASH:As markets continue to fall this year, you’ve probably heard about recessions, bear markets, and the possibility of a full-blown stock market crash. But what does all this mean for your investments and what can you do to prepare?
In this guide, we’ll explain how you can thrive despite the prevailing pessimism. You’ll find out what crashes mean for investors, and some tips for weathering the storm safely.
Keep reading to get all the details you need to know about the current state of the markets.
- What is a stock market crash?
- Recent example of a crash
- Difference Between a Crash and a Bear Market
- How the markets look in 2022
- How can investors prepare for a crash?
- What else investors need to know about the stock market crash
What is a stock market crash?
This term is often used and there is no classical definition of a crash.
In general, it refers to a sharp drop in the price of shares and units on a wide range of markets or indices.
To qualify as a crash and not a correction, the decline must usually be rapid. And the values must fall by at least 10%.
What is the recent example of a stock market crash?
In March 2020, we witnessed a stock market crash due to the arrival of the coronavirus, which created a great deal of uncertainty worldwide.
Then there you have it. Major stock markets around the world have collapsed.
A useful indicator is the FTSE All-Share Index, which tracks large companies around the world. In March 2020, it fell by more than 30%.
It was a rather strange “lightning shock”.
Indeed, the rapid reactions of governments and central banks (including the printing of a large amount of money) led to a rapid recovery of market confidence.
As a result, the bear market of 2020 was very short-lived. But today it seems that the chickens have returned to the fold.
What is the difference between a stock market crash and a bear market?
Understanding the small differences between the terms used will help you get a clearer idea of what’s going on in the markets.
While a stock market crash refers to a rapid fall in values, a bear market is a longer affair.
Bear markets are a prolonged decline in investment prices that results in a drop of 20% or more from recent highs.
Thus, the stock market crash of 2020 led us directly into what we would call a bear market. But we managed to recover and get out of it pretty quickly.
This year, we saw a more classic bear market, where stock markets fell gradually rather than all at once.
What are the markets looking like in 2022?
Although we are now in a bear market in some markets, a new “crash” from now on is unlikely but not impossible.
What is more likely is that prices will continue to fall until a “bottom” is found. These lows are impossible to predict, and we may have already reached them.
Only in hindsight can we say with certainty what happened.
It is important to keep in mind that not all investments and markets will be affected equally during this downturn.
For example, here is a brief overview of the performance of some major indices since the beginning of the year:
- S&P 500 – Down 13.5%
- NASDAQ 100 – Down 23%.
- FTSE 100 – Up 1.37%.
So it’s not all bad news. There are still ways to invest while limiting your losses, or even making money.
How can investors prepare for a stock market crash in 2023?
While another crash or drop may not happen this year, it’s still worth preparing.
By taking a few simple steps, you can protect your wallet and even thrive. Here are some tips to help you be a successful investor while everyone else is panicking:
One of the worst things you can do when markets are down is panic or react impulsively.
When the theoretical value of your portfolio falls, you only record these losses if you actually sell investments.
2.Check your pension
Many people often forget that their private pensions are actually invested in the stock markets.
If you haven’t done so recently, now is the perfect time to check your pension and see what you’re investing in.
You may want to change your strategy or just check that everything is in order.
3.Use the right accounts
When you make money from your investments, you may not be concerned about costs.
But when you’re losing money, it’s the perfect time to check that you’re using the right type of account and platform.
Make sure you use a low-fee brokerage account to buy, sell, or hold investments.
4.Make sure your portfolio is diversified
When markets go down, it’s not a good time to sell investments if you don’t need them.
But now is the time to check that your investment portfolio is sufficiently balanced.
How you choose to organize things will depend on your time horizon and risk tolerance.
However, you should aim to hold investments in a range of asset classes. This will give you the best chance of surviving a stock market crash in 2023. Or any subsequent year.
Try to include a mix of:
- Shares and shares
- Treasury bonds and bills
- Real estate (perhaps using REITs)
- Raw materials
If your platform doesn’t allow you to access a wide range of choices, you may want to look for another account.
That’s why we’ve partnered with the Bux Zero multi-asset platform. It offers a wide range of assets, allowing you to further diversify your portfolio. Read our review here.
5.Cut your losses
A stock market crash or bear market can be the perfect time to do a spring clean of your portfolio.
A great way to do this is to take a look and ask yourself: If you had to start all over again today, would you buy the same investments?
If not, it’s worth considering eliminating them.
When everything goes up in value, we all find ourselves choosing mediocre investments. Sometimes it takes a slowdown for us to be honest and wonder what we were thinking.
Mistakes are acceptable, it is impossible to invest perfectly. But there comes a time when it’s good to reduce your losses and consolidate your portfolio.
This way, you only keep the investments you really believe in.
6.Look for buying opportunities
Being greedy while others are fearful can allow you to profit from market downturns and crashes.
A good way to look at these situations is to compare them to large sales. Of course, there will be low-quality investments that you shouldn’t buy just because they’re cheaper.
But, there will be real bargains to be found.
A good rule of thumb to follow is to apply the same logic as for regular sales. If there’s an investment you were considering when prices were much higher, now might be a good time to buy it.
Not all investments recover from a crisis. But if you think the whole market will bounce back at some point, you can use index funds to capture all market movements.
Or, if you’re confident enough to choose individual investments, you’ll likely find plenty of opportunities in a bear market to invest heavier.
And hopefully, you’ll be rewarded for your adventurous spirit.
With inflation currently rampant, investing more (if you can afford it) is a great way to put your money to work instead of letting it lose value.
What do investors need to know about a stock market crash in 2023?
No one can know for sure how things will play out, or when events will happen.
There will always be some degree of investment uncertainty. Therefore, the best way to ensure that you are in a strong position is to always be prepared for all eventualities.
Advance preparation means you can run your wallet on autopilot without having to panic if the markets go wrong.
This year, investors may realize that things aren’t always easy. Similarly, a stock crash or bear market is not the end of the world either.
Maintain a calm and composed demeanor while managing the aspects within your control. Avoid inviting unwarranted pressure in your life and prioritize long-term thinking.