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Your share market crash survival plan, and how to play today’s volatile market

It’s not good.

In fact, we’re done for!

The dollar is in freefall.

Iron ore is finished.

China is toast.

The house price bubble is reaching epic proportions.

Later this week, Scotland votes for independence, with one pundit saying a YES vote could herald a Great Depression.

Heck, overnight, even my Facebook shares fell, shedding almost 4% in a broad sell-off of high flying tech stocks. Unlike.

US rates hikes could cause chaos,” goes the headline in today’s AFR.

“Beneath the U.S. stock market’s record-setting gains, trouble is stirring,” says Bloomberg.

Looks like it’s time to raise the “stock market crash” alert to red.

Or not…

As regular readers of Motley Fool Take Stock email will know, I’m not into making predictions.

What I will say however is, more likely than a stock market crash, will be the S&P/ASX 200 Index grinding higher, and higher, to 6,000 and above on the back of a lower dollar, low interest rates, a strongly recovering US economy, continued Chinese growth, all ultimately leading to a recovering Australian economy.

As if to emphasise the point, overnight the price of iron ore staged a BIG comeback, rising $US3.20, or 3.9%, to $US85.20 a tonne, its biggest one-day rise since March.

Take that, market crash!

Yes, I’m a glass half-full type of guy.

If markets do crash, I’ll look forward to scooping up some bargains.

If not, I’ll look forward to my portfolio continuing to make new highs.

Stock market investing — the game where, if you can control your emotions, and you invest in high quality companies for the long-term, it’s virtually impossible to lose.

Mind you, not every stock you own will be a winner. I’ve had my share of losers over the years, and am sitting on a couple now.

But the winners — stocks like Woolworths Limited (ASX: WOW), up from $2.45 at their float to over $35 today — will far outweigh the losers. After all, a stock can only fall by 100%. Its potential gains are infinite.

But only with patience will you win. By only remaining invested through the inevitable market crashes and corrections. In short, time in the market wins, not timing the market.

So, by all means, prepare NOW for a market crash. Prepare yourself mentally. What will you do if stocks crash? What won’t you do?

I’m always prepared.

I hold a decent cash balance, it effectively being my hedge against a market crash.

The long list of Motley Fool Share Advisor buy recommendations are on my radar, including many I already own in my portfolio. Topping up your existing holdings, especially during volatile times, is one of my favourite strategies.

What I WON’T be doing is selling out of fear.

When markets correct, you never know where, and when they will bottom. The ride down is scary, uncontrollable, and fast. The temptation is to sell out a) to stop the pain, and b) so you can buy back in when the market has finally bottomed.

Such moves will leave you in the poor farm.

I’ve seen it all before.

All you’ll succeed in doing is selling at or close to the bottom of the market, and buying at close to the top. It’s a proven recipe for sub-optimal stock market returns.

Why all this doom and gloom today?

No reason, apart from it’s far better to formulate your market crash survival plan in calm, rational times than it is in the heat of the moment.

We’re overdue a market correction. That doesn’t mean it’s coming soon. But come it will. Be prepared.

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Of the companies mentioned above, Bruce Jackson has an interest in Facebook and Woolworths. 

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