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Stock market crash coming? Here’s what I think you should do now

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Right now, many investors are concerned that another stock market crash is coming. And who can blame them? At present, there’s an awful lot of economic uncertainty. Covid-19, Brexit, US/China trade wars, the US election… the list goes on.

Add in the fact that many stocks have delivered double-, or even triple-digit gains since late March despite the fact that economic data has been woeful, and you could say there’s a perfect setup for another stock market crash.

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Of course, no one can predict short-term stock market movements with any certainty. So, it’s impossible to say whether we’ll actually see another stock market crash in the near future. However, we can’t rule one out.

So, it could be smart to take a few preliminary steps now to prepare for one. That way, you’ll be ahead of the game if we do see another crash. With that in mind, here’s what I think you should do.

Check your portfolio

The first thing I’d recommend doing right now is checking your asset allocation. Make sure you’re not overexposed to stocks. You want to ensure your asset allocation is still suitable for your goals and objectives. For example, if you’re in retirement, ensure you have enough liquid assets, such as cash and short-term deposits, to get by in the near term.

If any particular sectors or stocks now have an over-sized weighting in your portfolio, you may want to consider rebalancing to manage risk.

Build a cash pile

The second thing I’d recommend doing is building a cash pile. Doing this will give you some ammunition to play with if we see another crash.

In the last stock market crash, those with cash on the sidelines were able to take advantage of some amazing opportunities. For example, I picked up shares in ASOS in March for just 1,100p per share. Today, they’re changing hands for near 5,000p.

The reason I was able to capitalise on this opportunity is that, going into the stock market crash, I wasn’t fully invested. Having some cash available gives you a powerful advantage when stocks are crashing.

Make a stock market crash wishlist

Finally, put together a list of the stocks you’d like to buy if the market does crash again. Focus on your best ideas and jot down your ideal buying prices. By doing this, you’ll be well-prepared should share prices fall. When everyone else is panicking, you’ll be able to step in calmly and pick up the stocks you want to buy at amazing prices.

I’ve personally been working on my own stock market crash buy list recently. Names on my list include:

  • Reckitt Benckiser – one of the world’s leading hygiene companies. I’ve bought shares recently but would love to add more at lower prices.

  • Unilever – a world-class consumer goods company that’s rarely cheap. I’d love to buy more shares at a bargain price.

  • Microsoft – a big player in a range of markets now including cloud technology, work-from-home technology, and video gaming.

  • Mastercard – a huge player in the payments market. I believe this stock – which is held by Warren Buffett – has a huge growth runway ahead.

If the stock market does crash again in the near future, these are some of the stocks I’ll be looking to snap up.

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Edward Sheldon owns shares in ASOS, Unilever, Reckitt Benckiser, Microsoft and Mastercard. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Mastercard and Microsoft. The Motley Fool UK has recommended ASOS and Unilever and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. 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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