Here’s when the next stock market crash will happen …
Tell the truth — when you saw this declaration, did you continue reading because you suddenly wanted to drastically rearrange your portfolio or take all of your money out of the stock market? If so, you can relax a minute. This post isn't designed to make you sound the alarm and get out before another crash happens. And we're not going to suggest that you go all in before the next boom happens either.
In fact, this post isn't intended to do anything of the sort. Instead, it’s to help you understand three important tenets of successful investing:
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
- Sound investors always ignore the doomsayers.
- You can (and should) protect your investments from the market volatility without taking extreme measures.
- Excessive loss aversion can force you into poor financial decisions.
Why Psychics Make Bad Investors
There's good news and bad news if you're feeling desperate to know when the next stock market crash or correction will happen. The bad news is that we have no idea when it’s coming. And no one else really knows either, no matter how far they go trying to convince you they've figured out some deep, dark market secret.
We'll get to the good news in a moment. In the meantime, here are four great reasons to ignore the stock market doomsayers.
- These stock market prophets of doom are always trying to sell you something. Always.
- Over any protracted length of time, the markets are much more stable than the doomsayers want to admit.
- The doomsayers are always wrong, at least over the long term.
- If you accept the counsel of a doomsayer, you’ll be making a decision based on emotion, which is always a bad idea.
The Good News About Market Uncertainty
Now for the good news and the most important knowledge to take from this article. You can prepare your investments for the next stock market crash or correction, even if you don't know when it's actually going to happen. You don't need certainty to be a successful investor. The key is steering your portfolio effectively as the market moves between its boom-and-bust cycles.
Here's what you can do to protect yourself from the next market disaster.
- Always make sure your portfolio is highly diversified across asset classes, industries and countries.
- Examine your portfolio to assess if you have the appropriate amount of equity exposure for your personal goals and for your risk tolerance level. You can gauge this by asking yourself what would happen if your portfolio's value were cut in half. If such a loss would greatly threaten your investment goals or force you to sell, then you most likely should not have 100% of your portfolio in the equity markets. That’s because a drawdown of 50% is very possible for a portfolio fully invested in equities.
Loss Aversion and Poor Financial Decisions
One of the most important things you need to understand about anticipating a market crash is the profound effect that intense feelings of loss aversion can have on your decision making. Loss aversion can be described as follows:
The idea of losing a (supposedly) valuable asset is sometimes so unpleasant that it can lead to poor economic decision making. Loss aversion can make you irrationally committed to the status quo, sometimes to the point where inaction or stubbornness can lead to the very financial devastation the behavior was intended to avoid.
In other words, loss aversion can turn the possibility of financial damage into a self-fulfilling prophecy. You can avoid this dismal fate only by remaining vigilantly self-aware at all times and making wise, calculated financial decisions, not ones based on emotion.
So, at the end of the day, the question isn’t whether or not you know when the next market crash or correction will occur. It’s whether or not you’re adequately prepared when it does.
-
Visa Is the Worst Dow Stock Wednesday. Here's WhyVisa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
-
Another Analyst Moves to the Sidelines on Tesla Stock After EarningsTesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
-
Confused by Annuities? Making Sense of the Different TypesMany investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
-
Talkin' 'Bout My Generational Wealth: Baby BoomersWith retirement, each generation has different priorities and challenges. For Baby Boomers, it's a matter of ready or not, here it comes.
-
How to Avoid a Big Hassle if Your Financed Car Gets WreckedHow an insurance check is made out for repairs can cause a world of problems if the lienholder is left out.
-
Estate Planning Strategies to Consider as Election NearsAre big changes in tax laws coming soon? Not likely, but you might want to take advantage of higher estate and gift tax exemptions well before the end of 2025.
-
How to Get Your Money's Worth From Your Financial AdviserA good financial adviser will focus on how your financial planning and investment strategy align with your lifestyle and aspirations.
-
Think of Prenups and Postnups as Financial Planning ToolsThese contracts provide a clear framework for asset management and protection and are especially useful if you get married later in life.
-
Congratulations on Your Raise: Three Things to Do With ItWe're not saying you shouldn't spend it on a new car, but there are some considerations to guard against lifestyle creep and to help ensure a comfy retirement.
-
Check Off These Four Financial Tasks to Finish 2024 StrongThe new year is a popular time to set financial goals, but now is the ideal time to check how you're doing. Four tweaks could make a big difference.
