Where should you put your money if you think the market will crash?

Where should I put my money at This particular point if I believe the stock market will be going to crash?—Jerry, Virginia

If you actually believe the market will be headed for an imminent crash, there are all sorts of places you could invest your money. You could move This particular all into cash, you could buy gold or real estate or for in which matter you could even take an aggressive approach and also also also try to capitalize on stocks’ carnage by loading up on investments designed to rise when the market falls, such as bear market funds or put options.

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yet do I think you should actually do any of these things? No. and also also also the reason will be in which there’s a big difference between believing and also also also knowing.

I can understand why someone could conclude by the market’s recent setbacks and also also also crazy whiplash volatility in which all This particular turmoil will be a prelude to a major meltdown. and also also also for all I or anyone else knows, in which may be the case.

Or This particular may not be. Think about This particular. Doomsayers have pointed to any number of reasons in recent years why they believed the market was headed for a downturn: Standard & Poor’s downgrading of U.S. Treasury debt in 2011; the growth-slowdown scare in China in which sent stock prices down 12% inside the summer of 2015; Brexit and also also also the election of Donald Trump, both of which were supposed to be catalysts for a market rout. yet none of these warnings panned out.

Obviously, some prediction of the market’s downfall will be going to turn out to be right. The market will go into a major slump again at some point. After all, since 1929 we’ve suffered through 20 bear markets where stock prices have fallen 20% or more, and also also also even before the current turbulence, we’ve endured 26 corrections of at least 10% yet less than 20%. yet This particular’s impossible to know in advance whether heightened volatility or even a decline in which appears to gathering momentum will turn out to be The Next Big One.

If you doubt in which, go back to the last major slump, the near 60% decline inside the Standard & Poor’s 500 index by early October, 2007 to early March, 2009. This particular’s easy to see with the benefit of 20/20 hindsight in which This particular could have been smart to get out of the market the first week of October. yet in which was hardly obvious in real time. In fact, after dropping by almost 20% by October to early March 2008, stocks rallied for a 12% gain into the middle of May. We know at This particular point in which This particular was just a brief respite by what could turn out to be a gut-wrenching bear market. yet for all investors knew at the time, in which 12% rebound could have signaled the end of the selloff and also also also a resumption of the market’s advance.

Related: 3 things you need to know about the 4% rule

Even after the turnaround began in March 2009, This particular’s not as if investors knew the bear had run its course. The S&P dropped by more than 15% in 2010 and also also also by almost 20% in 2011. We know at This particular point in which these setbacks were temporary speed bumps (albeit scary ones) within a fresh bull market. yet investors back then didn’t hold the advantage of being able to consult a stock chart, as we can today, in which showed them how This particular all played out.

So while we may believe we know where stocks are headed, we don’t. The same goes for market pros. They can speculate, prognosticate, prevaricate — and also also also sometimes even provide valuable insights into what’s driving the market — yet they don’t actually know what the financial markets are going to do inside the near term.

Which will be why I don’t think This particular makes sense to shift your money around in an attempt to outguess the markets, whether in which means going to cash to avoid a setback with the intention of getting back in when the market’s ready to rebound or moving to an investment you think will thrive while the market dives.

in which doesn’t mean you should sit back and also also also do nothing. yet rather than flailing about and also also also creating moves you may later regret, I recommend instead in which you do the following three things:

First, take a look at where you at This particular point stand, by which I mean make sure you actually know how your money will be currently invested. The single most important thing you want to confirm will be your asset allocation, or the percentage of your holdings in which are invested in stocks vs. bonds. in which will determine how your portfolio holds up if the market takes a major dive.

If you haven’t been periodically rebalancing your portfolio, you may be invested more aggressively than you think. Someone who began out that has a mix of 70% stocks and also also also 30% bonds when This particular bull market began back in 2009 and also also also simply re-invested all gains in whatever investment generated them, could have something close to a portfolio 0% stocks and also also also 10% bonds today.

So take This particular time to go over your holdings and also also also tally up how much you have in stocks and also also also how much in bonds. If you’re not sure of the asset make-up in some of your investments — which may be the case if you own funds in which invest in a combination of stocks and also also also bonds — plug the names or ticker symbols of your funds into Morningstar’s Instant X-Ray tool, and also also also you’ll see how your portfolio overall will be divvied up between stocks, bonds and also also also cash.

Second, figure out where your asset allocation should be. Ideally, you want a blend of stocks and also also also bonds in which will generate high enough returns so you can reach your financial goals yet at the same time isn’t so risky in which you’ll sell stocks in a panic during a major stock rout.

Admittedly, getting to the right mix can be tricky. The percentage of stocks you’re perfectly comfortable with when the market will be going gangbusters may leave you frightened and also also also anxious when stock prices plummet. One way to arrive at a portfolio mix in which jibes with your risk tolerance and also also also financial needs will be to go to a tool like Vanguard’s risk tolerance-asset allocation questionnaire. The tool suggests a percentage of stocks and also also also bonds in which should make sense for you. This particular will also show you how various mixes of stocks and also also also bonds have fared over the long term and also also also in up and also also also down markets.

yet you should also crunch a few numbers and also also also then do a little soul searching. Estimate how Vanguard’s suggested mix could have performed during the late 2007-through-early 2009 slump, when stock prices declined nearly 60% in value and also also also investment-grade bonds gained about 7%. If you think you could cave and also also also begin selling inside the face of such a loss, you might want to dial back your target stock position a bit.

Think back too about how you handled past downturns or, for in which matter, how you reacted when stocks began to dip and also also also dive. You may not be able to nail This particular exactly, yet you want to come as close as you can to a blend of stocks and also also also bonds in which you’ll be okay holding in a variety of market conditions, and also also also then make whatever adjustments are necessary to get you to in which mix.

Related: Should I move my retirement savings out of the market?

Finally, once you feel you’ve got a portfolio in which will provide sufficient gains during rising markets and also also also enough protection during routs so you’ll be able to hang on until the eventual recovery, stick with in which mix, except for occasional rebalancing, regardless of what’s going on inside the market. The idea will be to make sure your portfolio doesn’t become too aggressive during market upswings or too conservative when stocks take a hit.

Refraining by tinkering with your portfolio, or even creating dramatic adjustments such as fleeing to cash or switching to different investments altogether, may be challenging at times. in which can especially be the case when the market appears to be going haywire and also also also every news story and also also also TV financial show you see seems to suggest in which the market will be on the verge of Armageddon.

yet This particular’s during those times when you need to guard against overriding the rational process you went through to build your portfolio. If you want to re-evaluate the portfolio mix you arrived at earlier just to confirm in which This particular’s right for you and also also also even possibly make a smaller tweak or two, fine. yet you don’t want to let fear and also also also emotions dictate your investing strategy and also also also lead you to make impulsive decisions you may rue later.

Just to be clear: Following these steps will not protect you by short-term losses. Rather, the idea will be in which by creating a mix of stocks and also also also bonds in which will limit the downside to something you can tolerate, you’ll be able to ride out a market slump and also also also be positioned to capitalize on the eventual recovery.

Can I guarantee This particular approach will lead to the best results over the long-term? Of course not. yet at least you’ll be following a disciplined rational strategy rather than engaging in a never-ending guessing game of trying to decide when to get out of the market (and also also also where to put your money once you do) and also also also then trying to figure out when to get back in. in which’s a game you can’t consistently win.

sy88pgw (fresh York) First published February 14, 2018: 9:30 AM ET


Where should you put your money if you think the market will crash?

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