Shares are falling, and it’s making headlines.
In the media, different experts predict an impending crash.
Does that make you nervous?
You don’t have to fear a meltdown in the stock market. You can actually prepare for it and use it to your advantage.
Here are five things you can do to prepare yourself.
1. Make Sure to Tidy up Your Portfolio
You need to take a good look at your portfolio and make sure you have the right mix of stocks and other securities.
Some companies are doing better in a stock market crisis, while others are doomed to crash. The so-called cyclical companies will be among those who suffer the most. Cyclicals shares can be found in everything related to transport and construction.
Stocks with an unrealistic price level have the longest way to fall, so make sure to check valuation versus price on the companies in your portfolio.
Maybe you’ve stopped rooting for some of the companies but keep them just because you invested in them once.
A portfolio has to be reviewed and cleaned up from time to time. Just like your closet. Just like your bookshelf. Just like your fridge.
You need to make sure you are mainly invested in companies that you believe in in the long run.
2. Build Savings Pots
It’s said that “cash is king,” and this is especially true in a crisis.
You need to make sure you have cash savings for unforeseen expenses in your personal finances – and also ensure you have money to buy more shares in your portfolio.
Let’s start with your personal finances. It’s important to be able to find peace of mind and to know for certain that you’ll manage no matter what happens out there.
You must build cash savings for immediate mechanical problems such as car repair or new refrigerator.
You also need to have security savings so you can manage for at least half a year should you get fired.
When crises come, they tend to hit the stock market and the job market simultaneously, and the combination of being fired and seeing stocks dive is a stressful scenario.
Make sure to have a buffer that keeps you calm so you avoid selling off in panic.
3. Find Your Bucket
“When it rains gold, reach for a bucket, not a thimble.”
That’s Warren Buffett speaking there.
What does he mean by that? He’s saying you have to be ready to buy stocks when good opportunities arise.
In other words, you also need to have cash savings that you can activate in your portfolio.
How much? That’s entirely up to you.
The truth is that when stocks plunge, opportunities arise that are very, very rare. You need to be able to take advantage of them by buying up.
4. Educate Yourself
It’s not just your investments that are growing with compound interest.
Your knowledge of investing grows exponentially if you make sure to expand it all the time.
You can expand it by reading blog posts like this, reading books, and taking investing courses.
Yes, I teach value investing, and I recently launched my first live investing course in English.
Be sure to receive emails from me and join the Facebook group – and keep an eye out so you can sign up when I launch a new cohort, which will happen this spring.
5. Build Your Wish List
You need to know what you want to be invested in.
You need to build a wish list of at least 20 companies that you know you want to invest in if they hit a reasonable level.
Many people postpone doing the work now because they think they’ll do it when the so-called crash hits.
Well, that’s a bad idea. Most likely the opportunities will fly by you like rockets. It takes time to learn the tools and to find the wonderful companies.
It’s important to prepare for a possible crash by spending time today learning and researching those wonderful businesses.
There is actually no time to waste. Get started now.
In my e-book Free Yourself, you can learn a lot more about how to research companies. You can download it here.