Preparing for a Market Crash – HOW TO
Nobody is able to predict what will happen in the financial markets with 100% accuracy. In fact, even the most savvy investor will make incorrect predictions and will make losses in the financial markets. But there are steps that investors can take to lessen the financial impact in the case of a stock market crash. In light of the fact that views remain mixed over whether the stock market will crash in 2016 or not, the best stance that an investor can take is to prepare for the worst while hoping for the best.
One way that investors can prepare for a stock market crash is by investing in bonds which provide some amount of hedging against stock fallouts. As stocks fall in value, bonds tend to move in the opposite direction and therefore provide some type of cushion against any possible negative results from a stock market crash. However, in a case where inflation is rising, bonds will tend to be affected the same way that stocks are affected. So your strategy has to involve more than bond investment.
A good strategy for periods of high inflation is to invest in Real Estate Investment Trusts (REITs) which provide protection during periods of rising inflation.
Investors who find themselves with lots of debt should consider paying down those debts as quickly as possible in order to avoid the very adverse effects that a stock market crash would have if such circumstances. As a matter of fact, it is best not to even invest in stocks if you are carrying substantial debts. This is because any positive returns that you make from stocks may be completely wiped out by interest payments on debts.
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