Crashes, corrections, and downturns. The stock market is no stranger to dramatic fluctuations in the value of stocks. Most investors are well aware that investing in the stock market also means risking your money. Stocks can fluctuate wildly in short periods, and even the most cautious investors can lose a lot of money in a bear market. According to a recent poll by Wells Fargo, only 25% of Americans would be able

What is a market crash?

A market crash, also known as a “bear market”, is an extreme drop in the value of stocks. A market crash is usually accompanied by increased volatility, as well as a high volume of selling. It is often followed by a recession or even a depression, though not always. The crash of 1929, also known as “Black Tuesday”, is often considered to be the worst economic crisis in modern history. It was the result of a massive stock market crash that triggered a chain reaction of other financial crises. A market crash is not the same as a stock market correction, although the two terms are often used interchangeably. A correction is a short-term market decline that happens now and then even during healthy markets. A correction is usually followed by a return to normalcy as investors come back to the markets and buy stocks again.

How to prepare for the next market crash

The best way to prepare for the next market crash is by diversifying your investments. Diversification allows you to reduce the risk of losing all of your money in a single market crash. A typical approach to diversification is to invest in a mix of stocks, bonds, and other assets. The exact mix depends on your risk tolerance and your current financial situation. When you diversify your investments, you are spreading your money across different assets that react differently to economic conditions. When one or two markets are in a downturn, you might see gains in your other investments. Diversification is the most important way to prepare for the next market crash. It allows you to manage risk and reduce the chances of losing all of your money in a single market crash.

Diversification and automatic investing

Diversification is the key to successful long-term investing. And there’s no better way to diversify your investments than by investing in a low-cost, diversified, automated investment advisor that spreads your money across different assets. Some investment advisors recommend investing in a portfolio of 50 stocks. But why stop at 50 stocks when you can invest in thousands? Automated investing allows you to diversify your investments across thousands of stocks, bonds, ETFs, and other assets. It’s the most effective way to manage risk and reduce the chances of losing all of your money in a single market crash.

The importance of rebalancing

Reinvesting dividends and capital gains is good for your long-term investing strategy. But it can also lead to an unbalanced portfolio. As your investments grow, they will become increasingly weighted toward the assets that are doing well. A growing portfolio that is unbalanced is a good way to contribute to the next market crash. A heavily weighted portfolio is a recipe for disaster in a market crash. You can avoid contributing to the next market crash by rebalancing your portfolio periodically. Rebalancing is the act of bringing your investments back into balance by investing more in the ones that are underweighted and reducing your investments in the ones that are overweighted.

The best way to prepare for the next market crash is to diversify your investments. Sophisticated investors employ many different strategies to reduce risk, but the most effective way to prepare for the next market crash is to diversify your investments. Automated investing allows you to diversify your investments across thousands of stocks, ETFs, and other assets in one low-cost platform. All you have to do is choose the asset mix that is right for you.