What would you do in a market crash?

Market crashes are part and parcel of economic cycles. What should investors do to prepare for market crashes?

Investors should first and foremost prepare cash on hand. What I mean by that is that they should prepare emergency funds. This would be amounts that are set aside for daily expenditure and necessities. Most people would say to set aside 3-6 months of cash but personally, I would recommend 9-12 months of emergency funds. This is because when a market crashes, no one knows how long and deep it would take for the market to recover. From history, we can learn that the worst market crash was back in 1929, the great depression, where the time taken for the market to recover was 25 years.

For investors who still want to invest into the markets, expect that whatever investment that you make into the markets would be decreasing in value over time, but would eventually recover as seen from history. Only buy into strong and established companies which are seen to be monopolies or giants in their own field. Don’t chase things that are shiny and bright and stay within your own circle of competence.

If investors want to invest, they can consider looking at recession proof companies like those in the blue-chip industry which, no matter what, are still able to ride out such turbulent and volatile cycles in the economy around the world. For those investors that do not know where to invest, do not have the feeling of Fear of Missing Out (FOMO). Like what legendary investor Warren Buffett says “Imagine you have a punch card of 20 holes in it and that is all the chances you would be getting, be wise in the decisions you make”, this quote speaks straight to the point and tugs at the hearts of investors. If the investor sees that there is nothing to do, then there is nothing to do. You don’t have to force yourself to do things everytime.

Always be prepared for the worst and expect the best.

Invest safely!