Making predictions as to where markets are heading in 2019 is a fool’s (rather than Fool’s) errand since no one can say with any real certainty what will happen. However, that doesn’t mean investors can’t plan for every eventuality.
With this in mind, here are four great things you can do if markets continue to tank over the next 12 months.
1. Keep some cash in reserve
The expression ‘cash is king’ exists for a reason and its relevance stretches beyond business and investment.
While inflation gradually erodes its value over time, it’s still a really good idea to have some money in a standard current account at all times to meet near-term spending needs. This also gives you a safety net in the event of a sudden broken boiler or period of unemployment. Boring? Yes. Prudent? Absolutely.
With politicians still squabbling over our exit from the EU, this is arguably more important than ever in 2019. If we do experience a bear market, it’s worth remembering that these often last for more than a year before things slowly begin to recover. Save accordingly.
2. Don’t sell
The next ‘move’ is cheating somewhat since it actually involves not doing something.
The temptation to sell holdings as markets plunge can be (unexpectedly) strong. It’s also one that some younger participants might be experiencing for the first time if they commenced their stock market journey in the years since the financial crisis. There have been a few wobbles along the way of course but, generally speaking, the last 10 years or so have been fairly comfortable for investors.
A fairly uneventful market leads to complacency which in turn has the potential to make any reversal in sentiment feel all the more powerful when it arrives (which it always does).
Following the herd and jettisoning perfectly good stocks from your portfolio is a sure way to kill your chances of reaching financial independence. So, unless anything has fundamentally changed about your existing holdings, learn to sit on your hands.
3. Bag those bargains
Of course, keeping some cash locked away isn’t just good for helping make ends meet in tough times. Having some dry powder can also put you in a strong position in the event of quality stocks going on sale for knock-down prices (which is arguably already happening).
And the best place to hold these shares? In a tax-efficient wrapper such as a Stocks and Shares ISA or Self-Invested Personal Pension (SIPP). This way, any profits you make will be beyond the grasp of the taxman. Over the long term, this really matters.
4. Get diversified
Buying up bargain shares can still a bad move if these are all in one or only a few sectors. Investing in nothing but UK housebuilders is a risky move if there’s a sustained slump in the housing market. Purchasing nothing but energy firms might be ill-advised if Jeremy Corbyn were then to win a general election (since he would probably want to nationalise them).
But diversification goes beyond investing in different sectors. You also want to have a mixture of companies operating in different geographical areas. This makes even more sense with Brexit on the horizon. Why depend on one small part of the world when you could easily get exposure to a huge range of developed and emerging economies?
