10 Ways to Avoid the Stock Market Crash

The stock market has been turbulent in recent years, with the Dow Jones Industrials Index dropping 5,000 points since the start of 2016. Even though the market has recovered some ground since then, it is still a concern for many investors and parents looking for ways to make their savings last. This blog post offers advice on how to make sure you are not caught off guard by any unforeseen events that could disrupt your investments and cause you more heartache than you already have.

10 Ways to Avoid the Stock Market Crash.

1. Prevent Stock Market Losses with Proper Investing Procedures.

One of the best ways to avoid stock market crashes is with proper investing procedures. This means you should only invest in stocks after doing extensive research. When you have done your due diligence, you can make better decisions on whether or not to invest, and when to sell if you do. Too many people get overextended and then get blindsided when they need their money back.

Stock market crashes are really a lot like earthquake preparedness: we all hope that we don’t have to use it, but it is important to be prepared for the worst case scenario just in case it does happen. If your financial situation does not allow for a margin of error then you should consider other methods for investing your money.

2. Do Not Invest in a Stock That you Do Not Understand.

Another big mistake investors make is that they do not understand the stock they are buying. This can be the difference between making a good decision and a bad one. If you do not understand what you are investing in, then you are at risk of loosing your hard earned money. Investors need to do their research before investing in any stock so that they don’t get caught off guard if something goes wrong.

Many people make the mistake of giving their money to someone who tells them that what they are buying is great and will go up, when in reality it is more likely to loose its value quickly when it does go up.

3. Do Not Invest in an Uncertain Market.

If you invest in the stock market, you are doing so with the expectation that it will do what you expect it to. You need to be paying attention to your investments and stay informed about them so that you know when things are going bad or going better. If you see something is wrong with a stock, then do not wait until its too late to fix it. It is also better for your long term financial health if you can keep a close eye on them and make sure they don’t get waylaid by changing regulations or laws that can really hurt their value.

A good way to stay up to date on this and make sure that you are informed is to look for a newsletter or electronic alert system that will let you know when things change. In the event of a market meltdown, they can help you get out in time.

4. Invest in Yourself and Not Others.

If your savings are going to be used as a safety net for a stock market crash, then you should probably aim those gains at yourself rather than others. You should also keep your own personal investments separate from your investment accounts so that if something does happen, then you do not lose everything. If people start buying up everything and selling it off, then the price will go down in value very quickly with no warning. This can happen with stocks, bonds, insurance policies and even retirement plans.

5. Invest in Stocks that are Related to Your Business.

If you have a business, then it would make sense to invest in stocks that are related to your business. This way, you have an interest in the company’s well being and will be more likely to follow up on information about whether or not a good decision was made. There are many people who do this because of their personal relationship with the company and its management team. Even if someone else is managing your account for you, such as a broker or an investment advisor, then they should keep an eye on things for you too.

6. Diversify Your Investments.

Another way to avoid the stock market crash is to diversify your investments across different fields. Do not put all your eggs in the same basket, so to speak. This keeps you from becoming overextended and it makes sure that you have options in case something does go wrong.

Diversification is also important because it keeps you from getting bored of one field and looking for something new once the first investment goes sour. There will always be opportunities out there somewhere if you keep an open mind and do not limit yourself too much to just one industry or sector of business.

7. Understand Your Risk Tolerance.

Whether you are a novice investor or you have been investing for decades, it is important to understand your risk tolerance. If you do not know how much risk you can handle then it will be nearly impossible for you to make good decisions about the stock market. Do not let your emotions get in the way of making good decisions about the stock market crash that has been looming on the horizon for years. Keep everything under control and invest with a long term perspective in mind.

8. Emergency Cash.

It is always a good idea to have some emergency cash on hand for unexpected expenses. This can be a rainy day fund, but it also could be an advance to a business that you are already investing in so that you can stay ahead of the curve. In the event that the stock market crashes, then it will help to have some savings in the bank to tide you over until the storm blows over. Having some spending money available will give you more time and freedom while you figure out what your next step should be or if there is really nothing that can still change things in your favor.

9. Don’t Invest More than You Can Afford to Lose.

This is a good rule of thumb, not just for the stock market crash but for all investments. If you have to pay for rent or other bills, then you really should not be investing. Investing is an important part of your financial plan, but it should not come before your other obligations in life. No matter what reason you invest your money in, be sure that you are going to be able to sustain yourself through it.

10. Have a Plan.

Lastly, having a plan when you are investing is extremely important. If you do not know where your money is going, then how can you expect to have a good time investing in it? Never put the cart before the horse, so to speak. Having a plan for your investments ahead of time will lay the groundwork for your long term financial health. The stock market crash will be bad for some people and good for others, but it is all about having that long term plan in place to make sure that you are on top of it from day one.

In Conclusion.

The stock market crash of 2008 was definitely one of the most important economic events in American history. Whether you won or lost money in the stock market during that year, you will probably be looking back on it a lot differently once the dust settles and you know what happened. It can also be very motivating if you are starting to lose faith in the way your investments are performing and have been for some time. The sooner that you ask yourself these questions, the more likely it will be that you will make serious changes to your plans and investments if needed.