A fresh stock market sell-off is stoking fears of a full-blown crash. It’s not just worries over a potential AI bubble that’s got traders and investors hitting the ‘sell’ button, either.
AI stocks like Nvidia, Palantir, Meta, and Alphabet have plunged, grabbing the financial headlines. But the broader market is sinking too, as expectations of a December US interest rate cut fade. Poor Chinese economic data overnight hasn’t helped matters.
Could we now be on the cusp of a market meltdown?
What next?
There’s an enormous amount of macroeconomic and geopolitical uncertainty still out there. And it’s not just the issues I’ve described above that are spooking markets.
Global tariffs — and the possibility of fresh trade-related flare-ups — have repeatedly shaken stock markets in 2025. Surging government debts and political turbulence in North America and Europe are also testing traders’ nerves, as are signs of resurgent inflation.
Yet economic conditions are never perfect, and this hasn’t stopped global stock markets from surging over time. The FTSE 100 has overcome many problems, from banking crashes and Brexit to a global pandemic, to hit new records just this week.
Guessing the near-term direction of share prices is often a fool’s errand. Today it’s no different. But history shows us two things: one, that stock markets do crash periodically (roughly every six years, in fact).
And two, it pays to be prepared. Setting yourself up for a stock market crash can be key to building long-term wealth.
Here’s what I’m doing
A step I’ve taken to protect myself is by creating a diversified portfolio. This includes holding cash in savings accounts, alongside having exposure to bonds and precious metals.
The majority of my capital is tied up in shares in my Stocks and Shares ISA and Self-Invested Personal Pension (SIPP). However, I’ve taken a diversified approach to spread the risk, holding companies in various sectors and regions.
Owning stocks as varied as Coca-Cola HBC, Aviva, HSBC, and The Renewables Infrastructure Group helps me balance growth over time with protection from downturns.
To boost my diversification still further, I’ve bought the iShares Core MSCI Europe ETF (LSE:SMEA) in my SIPP. It’s packed with 1,009 shares in total, spanning industries as varied as financial services, healthcare, consumer goods, industrials, utilities, and information technology.
This isn’t the only reason I’ve bought the exchange-traded fund (ETF), however. Like any equities-based product, it’s highly vulnerable to a broader stock market crash. However, valuations across European equity markets are low, which could limit the scale of any falls it experiences.
Since 2015, this iShares ETF has delivered an average annual return of 8.5%. Right now, I’m confident of further strong growth as the rotation from US shares continues.
Seize the day
As well as holding a diversified portfolio, I’m building a list of stocks to buy in the event of a possible market crash. This way, I’ll be ready to strike and use some of the cash I have on account to buy some bargains.
Quality shares also tend to fall sharply during a broader market correction. While past performance isn’t always a reliable guide, those who seize the opportunity and snap them up can supercharge their long-term returns.
