5 Ways to Prepare for a Stock Market Crash

On June 13, the S&P 500 index ended the trading day in a bear market. Still, the milestone was nowhere near as dramatic as the stock market crash of March 2020, when COVID-19 sent markets across the globe into mayhem.

But there are plenty of reasons you may be worried stocks will continue to spiral downward, including continued out-of-control inflation and supply shortages, additional interest rate hikes and war in Ukraine.

The difference between a bear market and a stock market crash isn’t exactly precise. Both are defined as a 20% drop from the stock market’s most recent highs. But a crash typically happens rapidly, whereas a bear market is a prolonged period of decline. In 2022, for example, stocks have gradually fallen into bear market territory after reaching an all-time high in January.

First, the bad news: Yes, the stock market will crash again at some point. Stock market crashes are completely normal. From 1929 to 2021, the stock market crashed 21 times. It’s inevitable that it will crash again. We just don’t know when.

Now the good news: Historically the stock market has always recovered over time.

If you start preparing now, your finances will bounce back next time the market crashes as well.

5 Ways to Prepare for a Stock Market Crash

The problem is that many people don’t start thinking about how to prepare for a stock market crash until after the market has already crashed. That’s not exactly helpful advice when we’re already in a bear market. But no one knows how much further stocks may drop.

You can still take action now to mitigate the damage later. In many situations, though, the best action plan will be to wait things out.

1. Don’t Try to Time Your Way Out

Some people attempt what’s known as market timing, which means they try to cash out their investments before the market crashes. Or they don’t invest when stocks are surging because they think the market is overpriced.

The problem is that even the best…

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