How I plan to navigate the 2024 stock market crash

While recognising it’s futile to predict the near-term direction of the market, our writer shares how they’d prepare for a stock market crash.

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The short-term direction of the stock market is almost impossible to predict. In fact, I don’t think it’s even helpful for investors to dwell too much on the question of whether the market will rally or crash next year.

That being said, with a handful of top investors and analysts saying there’s a sell-off lurking around the corner, I’d be foolish if I failed to prepare for the worst-case scenario.

With that in mind, here’s my plan for navigating a potential 2024 stock market crash.

Building a resilient portfolio

Almost every investor knows the significance of diversification. It involves spreading investments across different sectors and geographic regions. And in the case of a market crash, having a well-diversified investment portfolio can help cushion the impact of plummeting share prices.

As such, I’m looking to buy stocks that tend to fare less poorly during market downturns. This likely means searching for companies in defensive sectors such as healthcare, utilities, and consumer goods.

Even in market crashes caused by macroeconomic downturns, people will always need essential services and products. As a result, these sectors can be less susceptible to the wider market volatility. Be that as it may, it’s worth remembering that a stock market crash ultimately affects share prices across the board.

Embracing the long-term perspective

Alongside building a diversified portfolio, adopting a long-term investment horizon will help me withstand temporary market fluctuations. This is because during times of market turmoil, emotions can run high, and any impulsive decisions can lead to even more substantial losses.

Therefore, my approach during any stock market crash will be to remain patient and disciplined by avoiding knee-jerk reactions.

In so doing, I’ll also be allowing time for the power of compound returns to take effect. This process is key to building substantial wealth over the long term.

So, irrespective of whether the market crashes or rallies, I’d continue reinvesting the dividends or profits I earn from my portfolio back into those same shares. After all, the longer my money is invested and given time to compound, the more I will benefit.

Capitalising on opportunities

Finally, I think it’s helpful to see a market crash as a chance to purchase high-quality stocks at significant discounts. In any case, every bear market has eventually given way to a bull market.

During market crashes, the often indiscriminate selling can lead to excellent companies being seriously undervalued. Therefore, by focusing on fundamentally strong companies with a competitive advantage, robust balance sheets, and loyal consumer bases, I can position myself to capitalise on the inevitable market recovery.

All things considered then, I don’t see any reason to fear the stock market crashing in 2024. By building a resilient portfolio, embracing the long-term perspective, and capitalising on good opportunities, I can put myself in a strong position for the long term, regardless of whether share prices rise or fall.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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