With the S&P/ASX 200 Index (ASX: XJO) shedding close to 30% of its value over the past month or so, many investors (if not most) would be licking their wounds right now (this writer certainly is).
Whilst stock market crashes like this are painful on paper, I'm sure there are many people out there desperate to know how to take advantage of the current situation for long-term wealth creation.
Before we discuss how to profit from the current lows we are seeing in ASX shares, I'd just like to point out that the single worst thing you can possibly do is sell your shares at low prices. This 'locks in' your loss and doesn't give your shares an opportunity to ride out the storm (at least with you owning them).
But let's assume you've just dealt with the pain of having your portfolio decrease in value on paper.
How to make money in a market crash
There are a few ways that investors can try to profit from this kind of stock market environment.
You can go into 'hedge' assets like cash, gold or bonds.
For the latter two, there are easy ways to do this through exchange-traded funds (ETFs). Two that come to mind are the ETFS Physical Gold ETF (ASX: GOLD) and the iShares Treasury ETF (ASX: IGB).
But this is far from a perfect strategy. If you had done this before the crash, it would be ok, but I think the point of moving asset allocations right now is closing the barn door after the horse has bolted.
Another option would be to use 'inverse' ETFs like the BetaShares Australian Equities Bear Hedge Fund (ASX: BEAR). ETFs like BEAR are designed to rise if ASX shares fall. But I think this is a niche strategy unsuitable for everyday investors and not one I would recommend.
In my opinion, the best way to make money during this time isn't by shifting asset classes or using complex ETFs. It's simply by buying good quality ASX companies for the rock-bottom prices we are seeing on the markets today.
This might not feel like the wisest use of your precious cash right now, but I think there are some deals being offered that would set up a portfolio extremely well in the months and years ahead. Some people are calling this crash a 'once in a lifetime' opportunity, so I think it's a great time to load the boat on your favourite companies. In my humble opinion, bravery right now will be handsomely rewarded in time!
