A Market Crash is Coming!

A market crash is definitely coming. It’s lurking in the dark corners of this seemingly robust economy, biding its time before swooping in for the kill. Warren Buffet famously said “be fearful when others are greedy, and be greedy when others are fearful” and if others aren’t greedy at the moment I don’t know what greed is. The crash is coming.

the Market Crash of Yore

The market could crash this fall. After all, the most famous stock market crashes in history happened in the fall. Black Thursday, which started the Great Depression, was on October 29. Black Monday, which started the 1987 recession, was on October 19. Lehmen Brothers collapsed on September 15. Apparently, Autumn isn’t the market’s best season.

But it might not crash until Spring. The Dot-Com bubble burst on March 10 and there were “flash crashes” in May of both 1962 and 2010.  There was also a huge three-year panic that started in May of 1901. Maybe spring isn’t so good for the market either.

The market crash may not be about the season though. World events can easily trigger a recession, as they have numerous times in the past. In July of 1990, the Iraqi invasion of Kuwait let to nine-month recession. The September 11 attacks on the World Trade Center also led to a huge decrease in stock prices. Daily speculation about what the president or fed will do also leads to sell-offs (and sometimes gains!).

Its almost as though a recession can happen at any time during the year, for a variety of reasons.

Indicators

Economists generally use indicators to try to predict what the market is going to do, or when the next market crash will be. They use the big three stock indexes (the Dow, the S&P, and the Nasdaq) to predict the health of the market itself, but predicting an economic crash isn’t just about the stock market, it’s about the economy as whole. Some common economic indicators are the employment rate, the inflation rate, and the consumer confidence level. However, there are so many different indicators that at any given point, at least one can point to a looming crash. An economist or a journalist can easily find data to support the theory that a market crash is coming.

I know what you are thinking. Why would a journalist or an economist want to find data to support bad news? Unfortunately, that’s easy: sweet sweet page views. When you see an article with a catchy title warning of a pending crash, you click on it, right? I mean, you clicked on this one, didn’t you?

A market crash would be a horribly disruptive event, and we all want to be prepared for it. We all want to be able to predict it so we can protect our assets. Unfortunately, real life doesn’t work that way.

By now I hope you have realized the point of this post. Is a crash coming? Of course. Nothing goes up forever. Is it coming tomorrow? Probably not. Is it coming this year? Who knows. No one can predict when the next crash is coming. It could be this year or it could also be five years from now.

what should we do?

What should you do to protect yourself from the next big market crash? The answer largely depends on your age and risk tolerance. If you are near retirement, you should be moving some of your assets into low risk funds – bonds, CDs, and maybe even cash. But if you are young the best way to protect yourself is through diversification. You should still be investing, because you don’t want to miss out on any of the gains of these good days. Diversify your investments. Buy index funds instead of individual stocks. The crash will come, but it’s impossible to time. If you stick with your investment strategy, you will be fine.