Sunday , 25 February 2024

How to Prepare For the Inevitable Market Crash

…How would you respond to a market crash? A good way to tell if you can live with a portfolio is to look at the worst year [over the past 40 years] and imagine it happening to you this year. Would you really stay with an all-stock portfolio after losing 36% in a single year?

The original article has been edited here by for length (…) and clarity ([ ])

Fortunately, a more diversified portfolio can still provide very competitive returns while protecting you from large losses.

  • A portfolio with an equal mix of stocks, 10-year treasuries, and gold has returned about 9.5% per year since 1971,
  • while the S&P 500 had average annual gains of around 10.5%. That extra one percent a year comes at a very high price in the form of higher volatility, sleepless nights, and pressure to sell.
  • With equal amounts of gold, stocks, and bonds, you would never have lost more than 10% in any calendar year.
  • Even better, you always would have recovered your losses after only a year.

A diversified portfolio is also much easier to live with when disasters strike.

  • Tragedies like 9/11 and Hurricane Sandy have shut down the stock market in the past. When that happens, investors with all stock portfolios lose access to all of their funds.
  • Then there are the everyday threats like hackers and frozen accounts.
  • If you own gold coins and bullion directly, then you have an asset that is always available when you need it.

The best investments for you depend on your ability to handle risk and how close you are to retirement.

  • For most investors, adding gold and bonds to their portfolios makes it much easier to endure stock market crashes.
  • An all-stock portfolio is like a very strict diet. It works great if you can stick with it, but you probably won’t.

The best investments for you are investments you can live with.