Stock market crashes don't happen all that often, but when they do they cause a great deal of financial distress. Crashes can wipe out investment accounts, making it harder for people to retire or save money.
However, stock market crashes don't only represent losses. There is an opportunity when values dip - you just need to know how to take advantage of it (beyond shorting stocks you think are heading to the ground, that is). Read on to learn about some ways you can leverage the next stock market crash to boost your returns.
To weather any sort of dip in value, you should make sure that your portfolio is diversified. Being invested heavily in the financial sector, for example, would have wiped out a ton of value in 2008.
You should always have a few "evergreen" stocks that are unlikely to see changes in their business despite an economic downturn. This includes things like alcohol companies, established retailers with international presences, and other low-risk, low-growth stocks. While you'll still need to rebalance eventually, this can help minimize losses.
Dollar-cost averaging is an investment method that lets you maximize your investment, and it can pay off huge during crashes. With this strategy, you choose to invest a specific amount of money at regular intervals. This means that instead of buying 1,000 stocks at $30 each for $30,000 total, you invest $10,000 every four months for a year.
As stock prices dip up and down, you'll buy at different prices and receive different amounts of stock. If in the first four months the stock price was $30, and the next saw it dip down to $20, and then rise again to $35, you'll be ahead of where you would be if you had invested all at once.
Look at the math below:
$10,000 first four months at $30 a share = 333.3 shares
$10,000 second four months at $20 a share = 500 shares
$10,000 third four months at $35 a share = 285.7 shares
This leaves you with a total of 1,119 shares instead of 1,000, a difference of $4,165 at $35 a share! While a crash will likely last more than a year before recovery, it's still a good example of how regular contributions can grow your wealth.
Another important point to make is that the example above does not include dividends. Having a diverse portfolio with some stable, reliable-yield stocks lets you boost your regular purchases and compound your growth. You can
Dividends can also help you withstand short-term dips in value during a crash, maintaining the overall value of your portfolio.
If you need to access funds in the short term to take advantage of the next stock market crash, you may want to consider getting a stock loan, where you pledge your stock as security for the loan. This lets you access capital, and then pay back the loan to get your securities back (with an increase in value that may come with it). For more information about this unique financial vehicle, feel free to get in touch with us!
The information contained herein is presented solely for the purposes of discussion and under no circumstances should this be considered an offer to buy or a solicitation of an offer to sell any security. Stock Loan Solutions is not a registered securities broker-dealer or an investment adviser with the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority. Stock Loan Solutions, its managers or affiliates have not been registered and do not plan to be registered under the Investment Advisers Act of 1940 or any similar state or foreign securities laws. Stock Loan Solutions is not registered under the Investment Company Act of 1940 or under any similar state or international securities laws. Stock Loan Solutions does not offer any form of investment (buy or sell) advice, tax counseling, estate planning, or any other securities or financial advice whatsoever. No statements on this website or any verbal or written statement by any representative shall be construed as such advice. We are neither licensed nor qualified to provide investment advice.
We take protecting your data and privacy very seriously. Do not sell my personal information.
© 2024 Stock Loan Solutions