Stock markets might crash. What should I do? – Motley Fool UK

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It could be argued that the chances of another stock market crash are growing. Here’s how I’m preparing for a fresh bout of market volatility.
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No-one can say with any certainty when a stock market crash will happen.
There are many different economic levers competing to pull financial markets in certain directions. Any one of these can have a significant influence on the way investors and traders behave.
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Investor sentiment can also be fickle and subject to severe and unpredictable movements. Unexpected events can come out of the blue too that send share prices plummeting.
That said, a steady stream of worrying economic data today means that a fresh stock market crash soon can’t be ruled out. The FTSE 100 has slumped again on Thursday (currently down 2.1%) following some poor earnings releases that have worsened fears over economic conditions.
There are several good reasons why another correction could be just around the corner. These include:
Despite frantic rate hikes by central banks, prices continue to rise at their fastest for decades in major regions. Many think the problem will get worse before it gets better too.
Today, grocery researcher IGD predicted food inflation in the UK could reach a shocking 15% over the summer. Inflationary pressures could remain heightened as long as the war in Ukraine continues.
Overly-severe monetary tightening by central banks threatens to choke off the economic recovery. Because of this, unexpected action by policymakers may worsen market volatility too. Yesterday, the Federal Reserve announced the largest rate increase since 1994. In a shock move this morning, the Swiss National Bank raised rates for the first time in 15 years.
Chief investment strategist at Edison Alastair George has warned that “the risk of a hawkish policy error is in our view increasing.” He notes that “the call to stand firm and not overtighten policy… will be a brave and tough one to make.”
The spread of new Covid-19 variants has meant the number of cases in key regions like China and the US are rising again.
The problem has fanned the inflationary fire further as supply chains have been disrupted. The challenge for the global economy could get much steeper as well if lockdowns return outside of China as we saw in 2020.
As I say, predicting the timing of a stock market crash is a challenging task. But I believe I should always be prepared for a correction.
I’m getting ready for a crash in the not-too-distant future. I’m not preparing to sell or reduce my share holdings and run for cover though. Instead, I’m building a list of top stocks I’ll be looking to buy if they plummet in value.
This is because, over the long term, stock investing is a proven way to build terrific wealth. Even accounting for periods of market volatility, investors tend to make an average yearly return of around 8%.
Nothing is guaranteed in life and no-one can promise that stock markets would recover from a fresh crash. However, history shows us that share prices have always recovered strongly from periods of extreme weakness.
And by buying when share prices are down I could potentially turbocharge my returns by riding the rebound, should it come.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.
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