It is almost impossible to predict when the next stock market crash will occur. However, the stock market's track record of ups-and-downs suggests that investors will experience further downturns over the long run.
Therefore, it makes sense to prepare yourself for the next stock market crash. Through adopting a patient approach that focuses on improving your industry knowledge, as well as readying your finances for investment in undervalued shares, you can increase your chances of making a million when the next stock market decline occurs.
A patient approach
It can be difficult to wait for a market crash. As the stock market's performance has shown over recent months, it can quickly rebound from even the largest and fastest downturns.
Although there may be stocks worth buying today and holding for the long term, some companies may now be fully valued after their recent rise. As such, it is logical to await more attractive price levels in some cases before deciding to add them to your portfolio.
As mentioned, a stock market crash is very likely to occur in the coming years. The track record of the stock market shows that it has never made gains in perpetuity, just as it has never experienced a permanent bear market. Through biding your time and awaiting the right opportunities, you can maximise your chances of buying high-quality companies at low prices and selling them at a later date for a higher price.
Evolving your industry knowledge
It is too soon to tell how much the recent market crash will affect a number of industries. Some may recover from the coronavirus lockdown measures that have been put in place, while changing consumer trends may impact severely on other sectors.
However, it makes sense for all investors to improve their sector knowledge in light of the major changes that could take place over the coming months. Some industries, such as online retail and healthcare, could become even more attractive. Meanwhile, others such as oil and gas, may struggle to produce market-beating returns.
By understanding how different sectors could evolve over the long run, you may be in a better position to know which companies you will buy when a market crash occurs. This may give you an advantage over other investors, since you will have a clear plan of action during temporary market falls.
Financial preparation ahead of a market crash
It's difficult to prepare financially for a market crash, but it could be a worthwhile step. This does not only mean having cash available to invest, it also means that your overall financial position is sound enough so that you are confident in remaining solvent throughout an economic downturn.
Declines in share prices are often caused by a weak economic outlook that could realistically affect your own employment situation and financial position. Therefore, by having sufficient resources available to cope with the personal effect of an economic downturn, you may be in a better position to capitalise on attractive stock prices without worrying about your own situation. This could increase your capacity to invest in bargain shares, which may boost your chances of making a million.
