Preparing for the Next Market Crash in Henderson
The best way for investors to survive a market crash is to be prepared before one happens. These strategies can minimize risk and help investors take advantage of opportunities that a crash may create.
Looking at the Long Term
What goes up, must come down and vice-versa. When a crash occurs, the market will eventually recover. The question is whether it will be too late for an investor who was depending on his stocks for income. People with low risk tolerance like those who are nearing or are at retirement age may not have the time to wait for the market to recover.
It is a natural knee-jerk reaction for some to want to cash out investments if they find themselves in a financial bind. If the market drops suddenly by 30 percent, and the investments are cashed out, that money is lost forever. A better strategy to be prepared for a market downturn is to diversify investments based on the investor’s ability to ride out the storm.
Investors that are nearing retirement age may want to work with their financial advisors to move into less volatile investments, like bonds or real estate. Building an emergency fund is also a good way to prepare for the next market crash. When building an emergency fund, it is recommended that people start small. The goal should be to build it up over time to the point where there is enough money saved to cover one year’s worth of living expenses.
In Bad Times, Bankruptcy May Help
For investors severely affected by a market crash or those who lose their jobs because of a crash, bankruptcy may help. In some cases, it may be possible to protect certain retirement funds from creditors. A bankruptcy attorney can advise what investments, retirement accounts, and assets are exempt. Some retirement accounts that may be exempt include:
- Retirement accounts that fall under the Employee Retirement Income Security Act (ERISA) like profit-sharing plans, 401(K)s set up and maintained by employers are usually protected.
- Non-ERISA plans like IRAs, SEPs and 403(b) plans have a limited amount of protection
- Some IRAs are protected under a separate bankruptcy law.
