Why I’m getting ready for a stock market crash

Market crashes are opportunities in disguise.

| More on:
Concept image of man holding up a falling arrow with a shield.

Image Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

History shows that every so often, the stock market will crash. The good news is that I’m not expecting one to occur any time soon and continue investing as normal. But that doesn’t mean that one won’t happen.

In light of this, I think investors should always have a plan of action in case a crash occurs out of the blue, as they invariably do.

Preparing for a stock market crash

When the stock market takes a sudden nosedive, it’s easy to succumb to panic and make rash decisions. However, experienced investors understand that turbulent times can present extraordinary opportunities.

The key is to be prepared and to keep a watchful eye on the ASX shares that have been sold off, potentially becoming hidden gems for bargain hunters.

During stock market crashes, quality companies with strong fundamentals often get caught in the crossfire. This can lead to unjustified price drops. Savvy investors that have done their research can capitalise on these situations by picking up these ASX shares at discounted prices.

For example, look at Goodman Group (ASX: GMG). During the COVID crash, you could’ve picked up its shares for around $11. Its shares have almost doubled in value since then. And it is not an isolated case, there are countless other quality ASX shares that were hit hard and have now gone on to increase the wealth of prepared investors.

Foolish takeaway

While we may not have a crystal ball to predict the exact timing of the next stock market crash, we can certainly prepare ourselves for its eventuality.

By staying informed, maintaining a level head, and identifying the ASX shares you would buy if they became undervalued, you can position yourself to thrive when the market inevitably takes a tumble.

It is also important to note that this shouldn’t stop you from making regular investments in ASX shares. After all, you could miss out on a 50% stock market gain while you wait for a 20% crash.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goodman Group. The Motley Fool Australia has recommended Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

A trendy older hipster guy with a long white beard and headphones pulls rockstar hand sign with his hands.
How to invest

Here’s what happens when you invest $50 a month in ASX shares for 40 years

From little things, big things grow.

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
How to invest

Warren Buffett just helped drive a US$36 billion profit. Here’s how

The investment guru's company Berkshire Hathaway reported its second-quarter results over the weekend.

Read more »

illustration of the words '1 million' in gold with confetti surrounding it
How to invest

How long would it take to build a $1 million ASX share portfolio investing $500 a month?

These are the steps to take to build a million-dollar portfolio.

Read more »

An older female ASX investor holds a gangster-style fist pump pose showing off gold rings with dollar signs on them.
How to invest

How popular are ASX shares among the rich and wealthy?

And how does your portfolio balance compare to the richest Australians'?

Read more »

Three miners stand together at a mine site studying documents with equipment in the background
How to invest

How to pick the best ASX lithium shares now ‘those frenzied days are over’

Irrational exuberance is now in short supply as lithium prices come back to Earth. It's time to take a measured…

Read more »

A businessman hugs his computer and smiles.
How to invest

64% of surveyed Aussie investors embrace this ‘Warren Buffett method’. Do you?

Warren Buffett likely counts as the investor most of us would like to emulate.

Read more »

An older woman wearing a wonky party hat looks unpleasantly at a glass of wine in her hand.
How to invest

What happens if you buy too many ASX shares?

When it comes to diversification, you can have too much of a good thing.

Read more »

ASX bank shares buy A young boy in a business suit giving thumbs up with piggy banks and coin piles
How to invest

Here’s which ASX shares I’d buy with my first $1,000 investment right now

Here are the investments I would recommend to a beginner with $1,000 to invest.

Read more »