Regardless of the fact that since “the lost decade” ended, we have had an incredible bull market run in the 10 years but still the stocks don’t always go up. As the lost decade showed us that the prices of stocks can get lowered and it can remain like that for years especially if the stocks starts from a place of very high expectations and stretched valuations.
So, when the stocks are reaching new peaks that’s the correct time for one to plan for the market. As that’s the time when you have the most assets at your disposal and also when the prices are high by selling the fewest shares you can make the change. So here are some of the tips to prepare for times of market crash.
1. Set aside money you’ll need within five years
For asset allocation, one of the most important rule is that the money does not belong to stocks that you need to spend for the next five years from your collection. Even if it’s been neglected throughout the bull market, it isn’t too late yet. To reach that threshold, the rule needs to be brought in front and center. One needs to get converted to cash or should have investments grade bonds that matches the duration.
2. Assess your stocks based on their long-term potential
Basically, stocks are financial assets that represent your ownership stakes offered by the companies in them. There isn’t any such guarantee can be given that the market’s price is anywhere near that fair value for the company. That’s the time for one to make the decision. The ones that you feel are overpriced and won’t be generating more cash in the long run, you can sell them.
3. Let your dividends tell you about the health of the company
A company’s dividends can tell you a lot about the company’s fundamentals in addition to the cold, hard cash they provide, apart from what the company’s share price look like. As compared to what you are getting paid, company’s dividend payout ratio will tell you how much it’s earning.
As these three tips displays, before the market falls if you prepare yourself for the inevitable crash now won’t have to be particularly painful.