Another stock market crash could come. This is how I prepare myself

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This year’s stock market crash has surprised many investors. The market has now made up some of its losses, but the likelihood of another crash later in the year remains high.

Therefore, it might be a good idea for investors to think ahead and prepare for a second stock market crash in the coming months.

Stock market crash round two

The stock market has seen healthy, positive development in recent months. However, the global economy continues to be hit by the coronavirus pandemic. In addition, the epidemic shows no signs of subsiding. The number of new cases occurring daily worldwide continues to increase.

Europe seems to have dealt with the virus for now, but a second wave later in the year remains an option. It could, of course, also be the case that the worst is already behind us. That would be a positive development for the global economy, but it is not guaranteed.

Therefore, the best course of action for investors could be to prepare for the worst (ie, another stock market crash) and hope for the best.

Prepare for the worst

The best way to prepare for another stock market crash without sacrificing profits if the market recovers could be to buy high quality growth stocks.

Several companies have benefited from the pandemic, and buying these stocks could help investors weather the next stock market crash.

For example, the FTSE has 100 shares Halma benefited from the increasing demand for health and safety equipment. In the meantime benefits Just Eat Takeaway from the increasing demand for take away food. The investors who owned these companies earlier this year have had attractive returns on their investments despite the pandemic.

With many FTSE 100 companies cutting their dividends, supermarkets have proven to be stable income assets in times of crisis.

Conversely, it can make sense to avoid companies that struggled during the last stock market crash. Oil companies were particularly hard hit when the price of oil collapsed. The banks also suffered. The same can happen at the next downturn, so it might be best to stay away.

The bottom line

While it’s impossible to tell what the future holds for the stock market, we can use history as a rough guide. In the recent crash, some companies did better than others.

These companies could do better than the rest of the market in the next crash. At the same time, these companies will likely offer attractive returns to investors if the market continues to recover.

Therefore, holding a diversified basket of these stocks could be the best strategy that investors should pursue in the second half of the year.

The post Another stock market crash could come. This is how I prepare myself appeared first on The Motley Fool Germany.

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This article was written by Rupert Hargreaves in English and on July 25th, 2020 on Fool.co.uk released. It has been translated so that our German readers can take part in the discussion.

The Motley Fool UK hat Halma und Just Eat Takeaway.com N.V. empfohlen.

Motley Fool Deutschland 2020

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