The Motley Fool

How I’d start planning for stock market crash part 2 today

Image source: Getty Images.

The uncertain economic outlook means that a second stock market crash in 2020 is a very real threat facing investors. As such, starting to prepare for it now could be a sound move.

Through analysing your existing holdings, identifying potential buying opportunities and holding some cash in your portfolio, you may be able to use a stock market decline to your advantage.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Identifying buying opportunities ahead of a market crash

As the recent market crash showed, sharp declines in stock prices can be extremely swift and without any prior warning. The stock market declined at an exceptionally fast pace earlier this year, and then went on to rebound at a relatively brisk pace.

As such, many investors did not have sufficient time to identify attractive stocks before they had rebounded to higher price levels. This means that they may have missed out on good value opportunities that were only available for a very limited time.

Ahead of a potential second market crash, it may be a good idea to make a list of companies that you feel offer long-term investment appeal. For example, they may be dominant players in their industry, and have solid financial positions that will allow them to survive a tough period for the economy. Through knowing which companies you are positive about prior to a stock market decline, you can be in a strong position to act upon lower prices that may only be available temporarily.

Assessing your current holdings

As well as searching for potential stocks to purchase ahead of a market crash, it may be worth reassessing your existing holdings. The economic landscape has changed dramatically over the past few months, and the operating environments for many businesses may be very different than when you purchased them. They may need to adapt their business models, and could be unable to do so.

Through identifying which stocks in your portfolio are worth holding for the long run, you may be able to reduce your number of holdings now ahead of a market decline. This may increase your cash balance so that you have greater liquidity in a bear market that provides you with greater scope to act upon low valuations.

Holding cash

Clearly, holding cash for the long term is likely to lead to disappointing returns relative to stocks. However, with the potential for a second stock market crash, having some cash in your portfolio could be a sound move. It may enable you to take advantage of lower stock prices to a far greater degree than otherwise would be the case.

It may also provide peace of mind so that you view a stock market fall as an opportunity to invest, rather than a reason to be fearful. This attitude can help you to capitalise on a temporary decline in stock prices ahead of a likely recovery.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.