The stock market has had a good year, with the S&P 500 up by a huge 110% since prices went down in March 2020.
However, stock prices cannot keep going forever. Some experts think the market is now overvalued, and it could be due for a downturn sometime soon. Whether that will really happen, though, is anybody’s guess. The stock market is known for being unpredictable, and it is uncertain when prices will fall.
That said, it is normal to be worried about a crash. Although nobody knows for sure whether a crash is around the corner, there are some things you can do to prepare your own portfolio.
1. Ensure you are diversified
Diversification is important for building a stronger portfolio, and it can make a big difference when it comes to surviving volatility. The more companies you are investing in, the more your portfolio could come back after a market crash.
A diversified portfolio should have 10 to 15 stocks from various industries. To be safe, though, it could be wise to invest in 25 to 30 stocks at least from a variety of sectors.
2. Invest well for your age
When you have decades before your retirement, you can invest more aggressively. As long as you are buying good stocks and you have a portfolio that is diversified, there is a good chance your portfolio will come back eventually if the market falls.
If you are close to retirement age, though, it is a good idea to begin investing more conservatively. Depending on how many years you have left before retirement, you might not have the time to sit back and wait for your investments to return from a market collapse before you need the money.
3. Choose the best investments
The personal investments you go for will have a great effect on your portfolio’s numbers as well as its ability to come back from market downturns.
High-reward and high-risk investments might be tempting, but they are not for everyone. These stocks might perform well in the short term, but they usually struggle in the long term — especially if the markets are volatile.
A safer solution, then, is to put your money into solid companies with stronger underlying business numbers. These stocks likely will not experience large growth, but they do have a good chance of surviving a market downturn and bringing in positive returns long term.
The Motley Fool has a disclosure policy.
Author: Blake Ambrose
Comments are closed.