Worried About a Stock Market Crash? Six Savvy Moves Investors Should Consider Now
By Lee Jackson | Published March 3, 9:32 AM EST | 24/7 Wall St.
With ongoing geopolitical tensions and economic uncertainties, many investors are increasingly concerned about the possibility of a stock market crash. While major indices still hover near all-time highs, history reminds us that steep declines can happen suddenly and without warning. Taking proactive steps now could help safeguard your portfolio and prepare you for potential market volatility ahead.
Market Context: A Look Back to Prepare for What’s Next
Wall Street has witnessed several dramatic crashes over the decades. For instance, the infamous 1987 crash saw the Dow Jones Industrial Average (DJIA) plunge 22% in a single day — a drop that today would translate to roughly 10,600 points. The devastating 2007-2009 financial crisis, driven by the mortgage and real estate collapse, saw the market fall as much as 57%, nearly triggering a new depression.
Following that low point in 2009, the U.S. stock market embarked on the longest bull run in history, which concluded in January 2022. However, the release of OpenAI’s ChatGPT in late 2022 sparked renewed enthusiasm, leading to three consecutive years of double-digit returns for the S&P 500. Despite this positive momentum, challenges loom. Escalating conflicts in the Middle East and Ukraine, rising inflation risks, and a soaring national debt nearing $38 trillion all pose threats that may drive markets lower. Adding to the complexity are concerns about speculative bubbles in artificial intelligence stocks and private credit markets.
Six Smart Moves to Make Before a Possible Market Downturn
To mitigate risk and position yourself prudently, financial experts recommend the following six strategies:
1. Build a Cash Reserve
A strong cash stash—often called “dry powder”—can serve as a critical buffer during market turbulence. Consumers and businesses are currently in relatively sound financial shape, and stock portfolios alongside home prices have appreciated significantly in recent years.
Consider selling some positions to harvest gains or offset short-term losses, thereby boosting your cash reserves. High-yield money market accounts now pay as much as 3.95% and are FDIC-insured up to $250,000, offering both liquidity and safety.
2. Close Out Margin Positions
Margin loans—money borrowed from brokers to buy more securities—can amplify losses during downturns, especially when invested in volatile stocks. Individual investors are strongly advised to eliminate margin positions immediately to avoid forced liquidations and substantial losses if the markets drop dramatically.
3. Maintain Exposure to Gold and Silver
Precious metals, particularly gold, remain a time-tested hedge against inflation and economic instability. Industry experts recommend holding approximately 3-5% of your portfolio in these assets.
The SPDR Gold Shares ETF (NYSE: GLD) is a popular vehicle that holds physical bullion and some cash. Each share represents one-tenth of an ounce of gold, providing an accessible way to invest without directly handling the metal. Although GLD does not pay dividends, it can offer downside protection during equity market sell-offs.
4. Reinforce Dividend Reinvestment
Reinvesting dividends is a proven method to steadily increase wealth over time. Investors should ensure that all dividends and capital gains from stock and mutual fund holdings are set to reinvest automatically. This strategy enables you to acquire more shares when prices fall, compounding long-term returns. Many stocks and funds pay dividends quarterly; therefore, checking your account settings now is advisable.
5. Consider Real Estate Investments
Real estate offers diversification away from the stock market and can generate passive income. For those experiencing a windfall, such as an inheritance, investing in rental properties can be both financially rewarding and personally satisfying.
While mortgage rates have increased over the past four years—with 30-year fixed rates peaking at 7.25% before retreating to around 5.98% for FHA loans—rates remain reasonable historically. Owning cash-flow positive rental properties adds a layer of stability to your portfolio, especially in uncertain market environments.
6. Look to U.S. Treasury Bonds for Stability
Treasury securities remain among the safest investments, backed by the full faith and credit of the United States government. The short end of the Treasury market, including 2-year notes yielding approximately 3.54%, has become especially attractive.
Certificates of Deposit (CDs) also offer solid returns, with one-year CDs yielding up to 4.05%. Additionally, money market funds insured by the FDIC are paying between 3.5% and 4% with the advantage of daily liquidity.
A notable recommendation from market analysts is the SPDR Bloomberg 1-3 Month T-Bill ETF (NYSE: BIL), which yields around 4.10%. This fund invests primarily in U.S. Treasury securities maturing between 1 and 3 months, offering safety and easy access to cash.
A Historical Perspective: Enduring Market Challenges
The Great Crash of 1929, marked by Black Thursday on October 24, remains the most severe stock market collapse in U.S. history. While recent years have seen volatility—2022 was the worst market year since 2008—investors have since enjoyed substantial rebounds.
Lee Jackson, veteran Wall Street analyst and author of this report, reminds readers that every major market disruption in history, whether triggered by geopolitical conflicts, economic crises, or other factors, has ultimately passed. Taking advantage of recent market gains to shift toward safer assets can help investors navigate the difficult environment while preserving capital.
Final Thoughts
Preparation remains the best defense against market downturns. Building cash reserves, limiting leverage, diversifying into precious metals and real estate, reinvesting dividends, and leaning on safe government-backed investments can collectively help soften the impact of a potential crash.
Investors are encouraged to stay informed, remain disciplined, and consider these strategies thoughtfully to protect their portfolios in an uncertain economic landscape.
About the Author
Lee Jackson has contributed to 24/7 Wall St. since 2012, offering deep insights from a three-decade career on Wall Street. His experience spans time at Bear Stearns, Lehman Brothers, and Morgan Stanley, where he witnessed pivotal market events including the 2008 financial crisis. A graduate of the Specs Howard School of Media Arts, Jackson combines industry expertise with exceptional communication skills, making complex market topics accessible to readers.
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