Will the Stock Market Crash in 2015, 2016 or 2017?
If you think there’s a very good chance this might happen, here are some points to consider:
A. If you need the money in five years or less, sell!
The longer you hold a stock or an ETF, the greater the odds that you will not have a losing year. According to the Investment Scientist site, there’s a 29.3% chance of a negative return if you hold a stock for 1 year. If you hold a stock or a stock market ETF for 10 years or more, there’s a 6.8% chance of a negative year.
If you do need the money within five years, then do consider selling. Otherwise, holding on to the investments is similar to gambling and speculating.
B. Know your risk tolerance. You can take more risk when you are young.
Know your risk tolerance. When you are young, you can take more risk and invest a greater percentage of your portfolio in stocks and equities. When you are older, you should take less risk.
Use the 110 rule. Take your age, and calculate this (110 – Your Age) = Percent You Should Invest in Stocks.
If you are twenty years old, then (110 – 20) = 90% of your portfolio can be in stocks. 10% can be in other investments such as cash or bonds or gold.
If you are fifty years old, then (110-50) = 60% of your portfolio can be in stocks.
C. Method 1: Stick to your Risk adjusted Asset Allocation
Based on the 110 rule above, you should know your ideal percentage of your portfolio which should be in stocks and equities.
If your portfolio is above your ideal risk adjusted asset allocation, sell enough to bring your portfolio in line with your preferred Asset Allocation.
The advantage of this system, is that if the stock market does go up before it crashes, you do have a chance of upside gain. The disadvantage is that if the stock market does go down, you could lose more money compared to the case when you sold more of your stocks before the crash.
D. Method 2: Underweight equities in your Asset Allocation
Another option is that if your 110 stock rule says you should be invested in 80% stocks, then underweight equities to some amount such as 40%. This means that you may have to sell.
The advantage is that when the stock market goes down, you may not be as affected. But if the stock market goes up, you won’t gain too much.
If you need help figuring out stocks to sell, consider using the InvestDashboard.com Rate My Portfolio feature and consider selling high PEGY ratio stocks.
E. Method 3: Sell all equities
Especially if you think the crash is imminent, or you don’t mind not profiting if the stock market suddenly goes up ten to twenty percent or more, you could sell all equities. This is a very aggressive move, and many people don’t encourage all-or-nothing behavior.
The advantage is if the stock market does crash, you will be safe. The disadvantage is that if the stock market goes up around ten to twenty percent before crashing, you will not take advantage of the increase in stock prices.
F. Method 4: Short some of the indices to profit from down swings.
Whether or not you sell stocks, there are options to profit from a market which goes down. You can short (profit when the stock or ETF goes down in price) index ETFs such as the SPY, or use special ETFs such as SDS which goes up if the market goes down, but goes down if the market goes up.
This is a more aggressive option.
One possibility is that you can hold some of your stocks, and then purchase SDS as the market goes down. And once it goes down enough, sell SDS for a profit, and you can buy more of your stocks, or buy new stocks.
G. Save up money to take advantage of opportunities. There will be buying opportunities.
Once the market crashes, there will be a time period where the market will base and consolidate and it will take some time before the recovery begins. If you saved up money as the market goes down, you will be rewarded with great buying opportunities for the long run.
H. Create wish lists of stocks you can purchase at lower prices.
As stocks go down during a correction or crash, keep a wish list of stocks or ETFs you want to buy, especially at lower prices.
Having trouble finding new stock ideas or want to evaluate particular stocks? InvestDashboard.com was created to help you with that.
Try InvestDashboard’s Stock Screener where you can narrow down the stocks you want to invest in.
Or Browse Stocks by Industry and then narrow down your selection to evaluate individual stocks.
Or use one of InvestDashboard.com built in lists where you can evaluate stocks on the winners list, the 52 week high list, or the stocks which broke the 200 Day Moving Average list.
I. You can stay invested in stocks such as Cal Maine Foods (CALM)
It may be okay to stay invested in stocks such as Cal Maine Foods (CALM) because this stock has a special situation. Avian Flu and disease have killed millions of poultry and it will take some time to rebuild the flock. Cal-Maine Foods profits from increased egg prices.
J. Watch out for taxes but don’t make taxes the primary reason for not selling.
Watch out for taxes as you sell in a non-tax sheltered brokerage account but do not make a decision for not selling purely based on taxes.
K. Be prepared to live without electricity or water for two weeks without help.
In general, it is a good idea to be prepared for any emergency including getting sick and homebound for a week, or experiencing floods, a tornado, earthquake, storm, or even just any situation where you lose power or water for a week or two.
Be prepared to survive for at least two weeks without water or electricity without outside help. You might even want to leave some emergency supplies in your cars (as you might be on the road when an emergency occurs).
It was said that the crash of 2008 nearly ended in a depression, and that there was a risk of a run on banks.
Saving some real cash outside of the banks (but not too much) might be a good idea. Even if you have a power outage for two weeks, you might not be able to use ATMs (no power), or fill up for gas (gas stations need power), or use the internet.
So do be prepared for anything and make sure you can survive for two weeks at the minimum without external help and without external power, electricity and water.
L. Some Reasons a Crash may occur soon (this year or next), or a we may be in a Bear Market ending in negative returns over the next five to seven years:
- Five Year Bear Market, down 25% from here, Target of S&P 500 is 1500 by 2020, Reversion to the Mean.
- S&P 500 to break out (up or down) soon?
- September 2015 Stock Market Crash Risk is higher? End of seven year cycle.
- September is seasonally the worst month of the year for stock market returns.
- The Federal Reserve has stopped Quantitative Easing programs and may raise rates soon.