Savvy bargain hunters will act.
Even with the Dow and S&P 500 both within striking distance of record highs, there are some grumblings in corners over how a stock market crash might be on the horizon. Concerns that store retail sales are missing targets and worries about rising consumer debt have some experts worried that another downturn could be coming. While it's not possible to time the market with any sort of true accuracy, it is possible to get an idea of what might be coming -- and prepare to take advantage of it. You might be surprised to discover that, far from being the worst time to buy, a stock market crash might be the right time to make some purchases.
Almost everything's on sale.
During a stock market crash, almost everything heads lower. And that means just about everything is on sale. Rather than selling when a stock's price is low, and locking in losses, you have the chance to buy when the stock is on sale. The price you get during a stock market crash might be lower than what you've seen for years. If you've had your eye on a stock, but haven't felt like it was a good price, a stock market crash can provide you with the deal you're looking for.
Buy stocks with staying power while they're undervalued.
If you're interested in a long term buy-and-hold strategy, a stock market crash can be especially helpful. Not only is everything on sale, but you can find value stocks with staying power. The drops in the prices of these types of shares might not be as dramatic as what you'd see with growth assets, but you can still find good prices. Examine the fundamentals of stocks to identify which are likely to have long-term staying power after the downturn ends. You can pick up more shares during a crash while the prices are relatively low.
Boost your shares of dividend stocks.
For dividend investors, a stock market crash can be a great way to increase the number of shares you hold in these assets. Because your payout is based on the number of shares you own, a bigger payout is in the offing when you buy more during a downturn. Consider looking at stocks that don't cut their dividend when things are tough. Dividend aristocrats can be a good choice since these are companies that have actually raised their dividends each year for the last 25 years -- including during recession years. Add more shares to your dividend portfolio during a crash, and you could reap benefits from increased payouts for years to come.
Even index funds are discounted.
Indexers can also take advantage of a stock market crash. While the benefits might not be as pronounced as what you'd see with focusing on individual stocks, you can still potentially enjoy the rewards. Index funds track the performance of the associated indexes, so as the market drops, index funds (and index exchange traded funds) cost less. Over time, though, the overall market -- and the indexes represented in the market -- tend to trend higher. So, being able to buy additional shares of an index fund or ETF while the price is lower can benefit you in the future, since you'll have more in your portfolio, helping you see bigger gains.
You're well positioned for the recovery after the crash.
In general, the market recovers after a crash. As long as you don't sell during the crash, locking in your losses, there's a good chance that you'll see solid appreciation later. As a result, buying during a crash -- when prices are low -- allows you to get more shares for each dollar you spend. The more shares you have, the larger your returns during the subsequent recovery. Buying during a crash can be a solid way to potentially boost your portfolio and future wealth. Here are some strategies you can use to prepare yourself for a stock market crash: set aside cash for bargain hunting, rebalance your portfolio and modify your bucket strategy to build cash.
Reasons a stock market crash is the perfect time to buy:
-- Almost everything's on sale.
-- Buy stocks with staying power while they're undervalued.
-- Boost your shares of dividend stocks.
-- Even index funds are discounted.
-- You're well-positioned for the recovery after the crash.
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