How to prepare for the next great FTSE 100 crash!

Britain’s economic storm seems to be waning, but the FTSE 100 will eventually crash again in the future. Here’s what investors can do today to prepare.

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When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

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The FTSE 100 has proven to be remarkably resilient to stock market volatility of late. Many of its peer indices here in the UK and across the pond have suffered large declines over the last couple of years. But the UK’s flagship index continued to chug along. It’s actually up by double-digits after taking dividends into consideration.

However, this stability mustn’t be confused with safety. Even Britain’s largest businesses have suffered disruptions. And in the long run, another market crash will eventually materialise.

A rebound in inflation could easily send stocks firmly in the wrong direction within a few quarters. Or perhaps it could take years before another severe correction rears its head. While the timing’s unknown, a downturn will eventually come to throw a spanner in the works.

Fortunately, there are several things investors can do to prepare to both protect and even expand wealth during such an event. Let’s explore.

Keep calm and carry on

While crashes and corrections are inevitable, they also have a tendency to repeat themselves. Initial panic turns into widespread mania. Mass sell-offs lead to sharp declines across all businesses, sending portfolios into the gutter. But eventually, confidence returns, valuations rebound, and opportunistic investors can make a lot of money.

A quick glance at the FTSE 250 demonstrates this perfectly, with the growth index up almost 20% since last October. And over in America, the Nasdaq 100 has skyrocketed by almost 30% over the same period.

Timing when such turnarounds will occur is a losing game – after all, there are too many factors influencing short-term sentiment. However, by spreading buying activity over several months, timing becomes less relevant. It’s known as pound-cost-averaging.

But while it does rack up more transaction costs, it also ensures investors continuously have money at hand to capitalise on new buying opportunities as and when they appear. This also includes companies already in a portfolio that have continued to drop, offering an even better price.

A top stock from the FTSE 100

Simply buying up beaten-down stocks during volatile periods seldom ends well. Even though the FTSE 100 has a perfect track record of recovering from even the worst financial disasters throughout history, not every constituent has been so fortunate. And we’ve already seen multiple businesses tumble out of the index just this past year.

Therefore, when hunting for bargains, investors need to pay close attention to quality. Businesses with terrific long-term prospects and the talent to capture this potential are far more likely to succeed. With that in mind, AstraZeneca (LSE:AZN) could be a top pick.

Apart from being one of the largest pharmaceutical giants with deep pockets, it has the advantage of operating in a defensive sector. Regardless of what the economy’s doing, patients need their medicine.

Investing in biotech and pharmaceuticals obviously comes with risks. Drugs are notoriously difficult to develop. And a failed product can be quite a costly affair, especially in the late stages of clinical trials. Not to mention the damage generic rival companies can cause once a blockbuster drug comes off-patent.

However, AstraZeneca’s portfolio is diverse. And it comes paired with an extensive pipeline of promising candidates, in my opinion. That’s why I think it could be one of the best FTSE 100 stocks to buy in preparation for a future market crash.

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.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca Plc. 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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