This year’s stock market crash caught a lot of investors by surprise. While the market has since recovered some of its losses, the chances of another crash later in the year remain high.
As such, it may be a good idea for investors to think ahead and get ready for a second stock market crash in the next few months.
Stock market crash round two
Over the past few months, the stock market has put in a healthy, positive performance. However, the global economy is still reeling for the coronavirus pandemic. What’s more, the epidemic isn’t showing any signs of letting up. The number of new cases around the world continues to rise daily.
Europe seems to have dealt with the virus for the time being, but a second wave later in the year remains a possibility. Of course, it could also be the case that we’ve already seen the worst of it. That would be a positive development for the global economy, but it’s not guaranteed.
Therefore, the best course of action for investors may be to prepare for the worst (i.e. 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 gains if the market does recover could be to buy high-quality growth stocks.
Several companies have benefitted from the pandemic, and buying these stocks may help investors ride out the next stock market crash.
For example, FTSE 100 stock Halma has benefitted from the rising demand for health and safety equipment. Meanwhile, Just Eat Takeaway is profiting from the rising demand for takeaway food. Investors who owned these companies at the beginning of the year have seen attractive returns on their investment, despite the pandemic.
Further, as many FTSE 100 companies have slashed their dividends, supermarkets have turned out to be steady income investments in a time of crisis.
Conversely, it may be sensible to avoid companies that struggled in the last stock market crash. Oil firms were particularly severely impacted as the price of oil collapsed. Banks also suffered. The same may happen in the next downturn, so it could 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 last crash, some companies fared better than others.
These businesses may perform better than the rest of the market in the next crash. At the same time, these businesses will likely provide attractive returns for investors if the market continues to recover.
Therefore, owning a diversified basket of these stocks might be the best strategy for investors to follow in the second half.
