Things seem to be on a knife-edge
Even more so than usual, people are interested in stock markets and speculating about what might happen. We're seeing more news stories about the markets, like the Dow falling 666 points on Friday (spooky!) or Bitcoin being cut in half.
Consider the following:
- stock markets have been going up for a few years now
- the US in particular is looking expensive
- bond yields are going up, so interest rates might rise in the near future
- the Japanese government has been buying stocks, propping up the market
Several people are predicting a melt up, followed by a crash.
So what should we do at this point? Sell everything, go to cash, and wait for the crash?
I don't think so. After all, we have no idea what is going to happen. People were saying similar things in 2013. If you had gone to cash and waited for the crash then, you'd be looking at huge lost gains, and still no crash in sight. Even a bad crash now would be unlikely to return prices to 2013 levels.
There is a chance that stock markets will continue for rise for the rest of this year or this decade. We just don't know.
There are some things we can do. We can look at our portfolio and make sure it matches our situation, and our goals.
We can pay down debt and make sure we have decent cash reserves (the last thing you want to do in a crash is have to sell things because you need the cash).
We can avoid large purchases and make sure our job/income is secure.
We can think about what we would do if there was a crash. Imagine how you would feel if your portfolio were suddenly worth half as much. Imagine the doom-laden stories on the news. Imagine the temptation to sell before things get worse.
If that scenario seems unbearable, perhaps you are taking too much risk. Moving some of your portfolio to bonds or cash will probably result in fewer gains going forward, but if it saves you from panicking and making an irreversible mistake in a crisis it will be worth it.
How about you? Are you doing anything to prepare for the coming crash? Any thoughts?