Is coming... someday.
The US stock market seems to be getting expensive. It looks somewhat like a bubble, but things aren't the same as they were in 2007. Basically no-one knows what is going to happen, but there is going to be a stock market crash at some point.
Could be this month, this year, next year, in five years time.
No one knows.
Rather than worrying about when the crash is going to happen, I believe it is more important to think about how you will react.
Having a plan, especially if you write it down and reference it when the time comes, will help you avoid reacting emotionally.
Here are my thoughts on the next crash. They are the thoughts of a guy with no particular background in investing, writing a blog on the internet. Needless to say you should not take them as gospel, but instead do your own thinking and seek advice from trustworthy sources (if you are paying for the advice, make sure the person you are talking to has a fiduciary responsibility).
Here is what I believe:
- There will be a stock market crash at some point
- No-one knows when it will happen
- When it happens, people will panic
- The media will run lots of sensational articles about how we are all doomed
- It will be impossible to predict the bottom of the market
- People with spare cash will be able to buy stocks cheaply
- The yen will get stronger as people rush to safety
- The markets will recover eventually
Now, I could be wrong about some of these. There is a small chance that I am wrong about number 8, and we suffer a catastrophic crash that we never recover from. I suspect I'll have bigger worries than how my portfolio is doing in that case though...
So what can we do?
Here's what I am doing at the moment. Remember, I don't know what I am talking about so you shouldn't take this as something that you should do.
- Most importantly, after a crash I'm planning not to sell anything or change our portfolio allocation.
- I am continuing to invest every month. My 12,000 yen a month to iDeCo and 40,000 yen a month to THEO are automatic now and I'm not going to mess with them.
- I am starting to accumulate cash (dry powder). When my wife or I have extra money to invest, I only invest half of it and keep the other half in cash in yen. We're slowly building up a war chest so we can go shopping during the next crash.
- I made a plan on how to invest. Right now it's very simple: if there is a crash (defined as everyone losing their minds in the media) then we will buy things that look cheap but won't spend more than 25% of our war chest each month. Hopefully this will help us avoid buying too early.
What do you think? Do you agree with my analysis? How are you planning to deal with the next crash?