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A market crash is usually what we call a situation where a stock index drops severely in just a few days of trading. A crash can be more sudden than a stock market correction.
A market crash is caused by sellers in a moment of panic, maybe due to an unexpected economic event, catastrophe, or a crisis.
A market crash is also equal to a massive loss of money. You can be up one day watching all your trading strategies failing while the numbers go through the wrong road.
Effective ways to protect your investments from a market crash
We know that a market crash is always a risk when it comes to investments. But, there are many ways to prevent being affected by a market crash. Here is a list of the best methods:
● Diversification
This is one of the most important things when it comes to making a shield for your investments for a bear market. Diversifying your portfolio is the key.
Depending on your risk tolerance, we recommend having most of your retirement savings in an individual stock or even exchange-traded funds.
You always need to be prepared to move a good portion of that money into a safer place if you see a crisis coming up.
● Grabbing your money
There is no better way of surviving a market crash that grabbing your money. Whenever you see real turbulence going on in the market, most professional traders are moving their money to cash or equivalents. This is the time when you will want to do the same, and you should before the actual crash comes.
A big pro about this method is that when you get out of the market quickly, you can get back in when you see the prices very much lower.
This is when the trend will eventually reverse, and you can even have more profit.
● Having a guarantee
We all know that keeping savings in guaranteed investments doesn't pay off well enough. But it is always recommended to keep a small portion in something that you know that is not going to fall with market movements.
Inside these methods, you have a few options when it comes to a guaranteed investment, like indexed annuities or indexed universal life insurance products.
● Hedging
When you see a significant downturn ahead, you can always get profit directly from it, so hesitation must be out the door. There are a couple of ways how you can do this, but it all depends on your time horizon and risk tolerance.
One of the ways you use is selling the stocks that you think are going to fall, and selling the stock short and repurchase it when the patterns show a better price for you.
● Getting rid of debts
When you realize you have some substantial obligations on your back, the best thing you can do is liquidating some or all of your holding and paying off those debts, especially when you see bad weather coming up for stocks.
Another great idea to secure yourself in times of market crashes is to pay off a good chunk of your mortgage. You need to minimize your monthly obligations.
● Harvesting tax-loss
Tax-loss harvesting is the best idea when you feel like you are not able to shield your investments from a collapse. This one is the option for losses sustained in what we call taxable accounts.
You can write your losses off against any gains that you have in those accounts.
