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Fear another stock market crash? Here’s what I’m doing now

Guessing what will happen next with the stock market is difficult, but there could be a stock market crash. We know just from what happened back in March these falls can be very sharp and painful for investors.

With that in mind, here’s what I’m doing as a long-term investor in a market that is fraught with uncertainties and potential tripwires.

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Slowly buying

This may seem counterintuitive if many investors and commentators suspect a stock market crash could be coming. But I will keep drip-feeding investments, especially into stable FTSE 100 companies that ideally are still paying a dividend. Why? Because on the one hand the market may not crash given the support from central banks and governments in recent months. And on the other because the alternatives are so poor.

Interest rates are hovering just above zero, and I don’t want to physically buy gold. In the long term, I still believe one of the best ways to grow my money is by investing in good companies that will survive any economic environment.

Keeping some cash available

While buying shares in good companies that are trading cheaply, I simultaneously plan to hold more of my portfolio as cash. I don’t want to be 100% invested in shares if there is a crash because I want to have some free cash to pick up shares cheaply.

Even when a stock market crash isn’t as likely as it is right now, it’s not a bad strategy to have cash to hand. Either for investment opportunities or in case of emergencies. As the famous saying goes: cash is king.

Holding defensive shares

Coming back to my earlier point about holding good companies, I think in these uncertain times there’s a clear reason for holding defensive shares. Ones where the demand for the product or services doesn’t fluctuate much when the economy rises or falls. Examples are pharmaceuticals or food.

Having defensive shares is less exciting than holding a tiny oil company, but they are also less likely to go bust, losing you all your money.

Ignore the noise

This one is hard to do but, in many ways, and for many long-term investors, worrying about the big picture and short-term issues is the wrong approach. It’s worth being aware of risks generally, but overall I think buying good shares and holding on to them is the easiest way to make money from the stock market. As opposed to trying to time the market to perfection based on the latest estimates and economic modelling. 

I’m unsure about what will happen exactly to the overall stock market. Like many investors more successful than me, I instead want to concentrate on buying quality companies at a fair price. I believe in the coming years this will help me massively increase the value of my investments. A stock market crash will be an opportunity to make better use of the cash I’m building up each month.

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Andy Ross owns no share 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.