Due to macroeconomic and geopolitical factors, many believe a forthcoming stock market crash is inevitable. Here’s how I’m preparing for any crash if it were to occur to boost my holdings.
How I’m preparing
When the stock market crash in 2020 occurred, I wish I had prepared better. Many of the stocks on my radar dropped in price substantially and now many have risen to surpass pre-crash levels. I have attempted to put together a method for any impending crash.
I have considered and picked some key industries I would like to capitalise on and add shares to my portfolio. One of those has to be tech stocks. This is because tech is now at the forefront of daily lives, personally and in work. Most manual, in-person personal and work tasks, have now been automated. So I would look for tech stocks that will continue to perform well despite a stock market crash. The shares should cheapen in the event of a crash, allowing me to pick up some bargains. An example of a stock on my list is Rightmove.
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I am also looking at growth sectors. These are stocks that reside in a market that is experiencing an upturn in fortunes and should continue to grow in the coming years ahead. A prime example of this is electric vehicle (EV) stocks. A focus on the environment and harmful effects of petrol and diesel vehicles has led to many car manufacturers creating EVs. A ban from 2030 of the production of new petrol and diesel vehicles will benefit the EV market. An example of an EV company on my list in the event of a stock market crash is TI Fluid Systems.
I must also look at a stock’s fundamentals. By this I mean the firm’s performance record, any dividend payment record that could eventually make me a passive income, as well as market share and its balance sheet too. For example, a firm with lots of debt would put me off.
What could cause a stock market crash?
From a macroeconomic perspective, soaring inflation is a global economic concern currently. The rise in consumer prices is worrying in many world economies. An example of this is the US. The Consumer Price Index (CPI) rose by 7% in December. This was the highest rise since 1982. In 1982, soaring inflation led to a stock market crash.
When certain world-leading economies are struggling, and crash, other economies also crash. The Chinese economy is in the midst of a real estate crisis and its gross domestic product (GDP) — a good indicator of growth — has been recorded at just 4% in Q4. This is the slowest pace in 18 months.
A geopolitical issue to keep a keen eye on is the Russia-Ukraine crisis. Tensions in the region between the two nations have increased. Many other world superpowers have got involved to mediate a solution to avoid a war. Tens of thousands of Russian troops on Ukraine’s borders in recent weeks have stoked fears of an invasion. History has taught me major wars can also trigger a stock market crash.
Nobody can accurately predict if a stock market crash will occur or not. I am preparing for one, though, and have a list of stocks for my holdings that I would buy for a cheaper price and expect to see a lucrative return over time.
