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5 ways to prepare your portfolio for a market crash


If you're looking for investing strategies throughout the current market crash, here's what you can do.

If you're a share investor, you've probably seen your portfolio fall in recent times.

A combination of conflict in Ukraine, COVID-induced supply bottlenecks and commodity price spikes have seen inflation reach a 40-year high.

And now markets are saying a recession could be on the cards.

But Munro Partners CIO Nick Griffin stresses that even with the current falls, from a historical point of view, the market could continue to fall.

"It is important to remember bear markets on average go for 300 days and they fall 37%," he said during a GSFM seminar.

Speaking of the US market he said, "This one has been going for 100 days and at its peak fell 25%."

Keep in mind just because the market is volatile, it doesn't mean it's time to cut your losses. Instead, here are some strategies to get through a market crash.

1. Don't be afraid of a bear market

The first thing you need to know is sharp falls in markets are perfectly natural.

While the technical definition of a bear market might frighten you, down 20% from its previous peak, it doesn't mean it's time to run.

In fact, it might actually be an opportunity for investors to buy quality assets at a discount.

According to eToro's market analyst Josh Gilbert, so far stocks have recovered from every bear market in history, albeit the lengths and depths vary.

"Long-term investors will be able to look beyond the current volatility and find quality stocks with lower valuations in this environment," the analyst told Finder.

"After all, bull markets are built on the shoulders of bear markets and are around 4 times the length and size of bear markets."

2. Diversify your portfolio

Regardless of the market conditions, Tiger Broker's director Brett Reynolds reminds investors diversification becomes important.

In a downturn, diversifying into a range of investment options can protect against risks.

"Traditionally investors diversify into bonds and cash," he said.

"That strategy has been a challenge in a low rates environment, so protective non-cyclical stocks, such as supermarkets, etc, have been the go-to."

3. Continue dollar-cost averaging

Investment plans work in all situations, including during a market downturn.

According to Gilbert, for those who can stomach volatility, sticking with their predetermined market strategy can help them get through a downturn. This includes plans such as dollar-cost averaging, which involves adding money to your shares regardless of the price.

"In a bear market, dollar-cost averaging can help to manage risk rather than trying to find a bottom and investing lump sums," he said.

"However, the volatility that will almost certainly create opportunities may be too much for some investors, prompting them to remain on the sidelines until the volatility subsides."

4. Never invest more than you can lose

History might suggest that over the long-term markets go up, so it is vital to know your own financial situation and act accordingly.

According to Gilbert, the old adage of never invest more than you can lose, rings especially true in today's environment.

"Keep in mind that we are in an environment where inflation is soaring, meaning that the cost of living continues to climb," he said.

While reiterating how dollar-cost averaging can avoid the impossible task of trying to time markets, he notes that this might not be for all investors.

"There is nothing wrong with sitting on the sidelines, waiting for the dust to settle before feeling comfortable to start reinvesting," the analyst concludes.

5. Bet against the market

While these strategies are specifically for those who are more experienced, you can choose more sophisticated investment options.

Although, this strategy comes with more risk.

"For the more adventurous investors happy to trade the market, the use of bear oriented ETFs have proved valuable as have the directly correlated index ETFs," Reynolds concludes.

Looking for a low-cost online broker to invest in the stock market? Compare share trading platforms to start investing in stocks and ETFs.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involve substantial risk of loss and therefore are not appropriate for all investors. Past performance is not an indication of future results. Consider your own circumstances and obtain your own advice before making any trades.

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