Another stock market crash may be coming. Here’s how I’m preparing
The Motley Fool
Published Jul 25, 2020 07:26
Updated Jul 25, 2020 07:40
Another stock market crash may be coming. Here’s how I’m preparing
This year’s stock market crash caught a lot of investors by surprise. While the market has since recovered some of its losses, the chances of another crash later in the year remain high.
As such, it may be a good idea for investors to think ahead and get ready for a second stock market crash in the next few months.
Stock market crash round two Over the past few months, the stock market has put in a healthy, positive performance. However, the global economy is still reeling for the coronavirus pandemic. What’s more, the epidemic isn’t showing any signs of letting up. The number of new cases around the world continues to rise daily.
Europe seems to have dealt with the virus for the time being, but a second wave later in the year remains a possibility. Of course, it could also be the case that we’ve already seen the worst of it. That would be a positive development for the global economy, but it’s not guaranteed.
Therefore, the best course of action for investors may be to prepare for the worst (i.e. another stock market crash) and hope for the best.
Prepare for the worst The best way to prepare for another stock market crash without sacrificing gains if the market does recover could be to buy high-quality growth stocks.
Several companies have benefitted from the pandemic, and buying these stocks may help investors ride out the next stock market crash.
For example, FTSE 100 stock Halma (LON:HLMA) has benefitted from the rising demand for health and safety equipment. Meanwhile, Just Eat (LON:JE) Takeaway is profiting from the rising demand for takeaway food. Investors who owned these companies at the beginning of the year have seen attractive returns on their investment, despite the pandemic.
Further, as many FTSE 100 companies have slashed their dividends, supermarkets have turned out to be steady income investments in a time of crisis.
Conversely, it may be sensible to avoid companies that struggled in the last stock market crash. Oil firms were particularly severely impacted as the price of oil collapsed. Banks also suffered. The same may happen in the next downturn, so it could be best to stay away.
The bottom line While it’s impossible to tell what the future holds for the stock market, we can use history as a rough guide. In the last crash, some companies fared better than others.
These businesses may perform better than the rest of the market in the next crash. At the same time, these businesses will likely provide attractive returns for investors if the market continues to recover.
Get The App
Therefore, owning a diversified basket of these stocks might be the best strategy for investors to follow in the second half.
The post Another stock market crash may be coming. Here’s how I’m preparing appeared first on The Motley Fool UK.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Halma and Just Eat Takeaway.com N.V. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020
First published on The Motley Fool
Written By: The Motley Fool
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.