When it comes to the markets, many investors feel as though the current state of affairs is going to last forever. However, this is not the case. In the short term, volatility is a reality. Plus, when it seems like nothing will stop a market from rising, that’s about the time when a crash comes in to wreak havoc with your portfolio.
It doesn’t have to be like that, though. How you respond to a market crash has a great deal to do with your attitude. It’s important that you prepare for what’s next. Even if you think that things are going to keep getting better, you still need to shore up your finances. Here are some things to keep in mind:
1. Are You Properly Diversified?
One of the things that you have to remember is that you can reduce your exposure to risk and falling markets if you are properly diversified. Diversification can help you do well when the markets are struggling because you have other investments that do well in such a climate. Look for ways to diversify your holdings to prepare for the possibility of a market setback.
2. Do You Have an Emergency Fund?
Following basically good financial principles is important when it comes to being ready for anything. One of these principles is building an emergency fund. You want to have a good emergency fund available. If your dividend income is cut due to market and economic conditions, you’ll need to make up the difference. An emergency fund is a must, since it can back you up as you wait for your portfolio to recover.
3. Do You Have Ready Cash to Make Purchases?
Another important thing is to be ready to take advantage of the situation. While many people live in fear of a market setback, others see these occasional market crashes and drops as a way to get ahead. It’s possible to pick up bargain investments. You can get more bang for your buck when you buy investments when they are “on sale.” If you think that the market is heading for a setback, freeing up some money can be a good idea. This way, you have some capital available to take advantage of any opportunities.
The important thing, though, is that you are ready. Plan ahead. During the good times, you need to prepare. Live within your means, and prepare for setbacks. Market crashes are a reality, and that means that you need to be prepared for them.