What would a stock market crash mean to your portfolio?
Written by Paul Dodd on July 31, 2017.
There are mumblings in some financial circles that a stock market crash is imminent. Whether or not that is true, none of us can tell, although those predicting doom and gloom for the markets point to several indicators, not least the fact that markets have been generous to most investors over a prolonged period with a bullish market since the beginning of the year. Have the markets been too good to us? Does the current mood of optimism make a correction inevitable? Perhaps now is the moment to stop and think about how your portfolio would ride the storm of a crash.
For lump sum investors, a crash could spell disaster. This approach is ill-suited to a stock market which has been rising over a sustained period. If you invest $50,000 in stocks today and tomorrow there is a crash, you risk big losses which could take many years to recoup.
Regular savers following what is known as the dollar-cost averaging approach will fare better. Making regular and equal contributions to an investment over a long period of time is a strategy which performs much better in market downturns. Indeed, it it a strategy which I think is better suited to most investors because it promotes disciplined saving – always a good thing – and decreases the stress of constantly trying to time the markets to buy at the ‘right’ time – a notoriously difficult thing to do. Continuing to invest through good times and bad is the best way to deal with market volatility.
And of course, another way to protect yourself from losses in a stock market crash is to diversify your investments across various asset classes. As I read recently, there is always a bull market somewhere. What that means is that while one asset class, industry sector or geographical region is suffering, another will be doing better. By diversifying investments you may have both losses and gains when market conditions change and these could balance each other out.
When investing it is crucial to remember what your granny always said: don’t put all your eggs in one basket.
If you’d like an objective view on your portfolio and how vulnerable it is to a market crash, I’d be happy to help. I can help you develop a robust investment strategy that works for you with regular saving and a well balanced asset allocation. Why not make an appointment today? Drop me a line at firstname.lastname@example.org or call +855 8933 0082 and we can discuss what I can do for you.