Will the ASX stock market crash in 2024?
I have absolutely no idea. And nor does anyone else. As all investors who have been around the block a few times will know, the markets have periodic and unavoidable crashes from time to time.
These are unpredictable and can be highly traumatic events, but are part and parcel of the investing process. As such, I think every investor should be ready for the next S&P/ASX 200 Index (ASX: XJO) stock market crash, whenever it may occur.
So it doesn't matter too much to me if the market crashes or not in 2024. But if it does, I'll be ready. Here are two ways that I'm preparing my portfolio.
2 ways I'm preparing for a 2024 stock market crash
Holding a small amount of cash
I subscribe to the theory that we as investors should be mostly invested most of the time. There are two things the market has always done that are always worth keeping in mind. Firstly, the market always goes up far more often than it goes down. Secondly, the markets have never failed to exceed a previous all-time high in all of history.
By this logic, it makes sense that we should prepare more for boom times by investing as much as we can, rather than preparing for a crash by holding as much cash as we can.
However, market crashes also give us an opportunity to buy our favourite ASX shares at heavily discounted prices. As such, I can't help but keep a small cash reserve at the ready, just in case the ASX is hit by some black swan event or trigger.
In some good news, this is a lot easier than it used to be. High interest rates are currently making savings accounts, term deposits, and offset accounts an attractive alternative to park surplus cash in.
Investing in quality companies at reasonable prices
This may sound superfluous, but I think the best way we can prepare for a market crash is by holding quality companies bought at prices that make sense.
If you overpay for even the best ASX shares, chances are that you will lose a lot of money in a market crash as negative sentiment pulls everything back down to earth. However, if you pay a share price that truly values (or even better, undervalues) a company, then you have a far better chance of protecting your capital during a market crash.
So I think the best thing we can all do today, before the next stock market crash, is to take a good look at our own portfolios. Perhaps there are some shares whose valuations have run too high. Perhaps there are some companies in there that aren't executing as well as you'd hoped. The best time to fix a leaky roof is when the sun is shining.