Another stock market crash may be coming. Here’s how I’m preparing

If another stock market crash occurs later in the year, investors need to be prepared. Buying high-quality stocks may produce a positive outcome.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

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.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Halma and Just Eat Takeaway.com N.V. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »