Why You Shouldn’t Worry About Another Stock Market Crash in 2020
When the pandemic-inspired crash sent stocks plummeting in March, investors endured some of the toughest weeks in stock market history. There is usually a lot more accumulation at a stock market crash in which investment values drop by 20% or more. Due to the unprecedented nature of the novel coronavirus, the March bear market was much more sudden and extreme.
Fortunately, the stock market has recovered well. At this point, investors who saw their portfolio values plummet earlier in the year have largely been cured. Still, there are those who wonder if there’s a second, even more brutal stock market crash in store for the end of 2020. And the reality is, we just don’t know.
While there has clearly been a major disconnect between the stock market and the general US economy over the past few months, bad news on the COVID-19 vaccine front could easily send stock values plummeting again. And let’s also not forget that this is an election year and the market could react unfavorably in November, but perhaps not in the same way as if the most promising Vaccines against covid-19 in the pipeline have proven to be unsafe or ineffective.
But despite all the uncertainty, it still doesn’t pay to expend mental energy worrying about a second stock market crash in 2020. Here’s why.
Bear markets are normal
Bear markets – an extended market period in which stocks lose 20% or more of their value – are quite common. There were 25 between 1929 and 2009. While some bear markets lasted over 400 days, others only lasted 62 days. The March bear market is already over, which means it was relatively short. If the market crashes again later this year, it could recover fairly quickly.
Bull markets more than offset bears
Bull markets – when stock market values are constantly rising – are just as common as bear markets. Between 1928 and 2009, there were 26 bull markets. Not only that, but bull markets tend to last longer than bear markets and tend to generate high enough gains to offset them. Between 1928 and 2009, stock values lost an average of 36% during bear markets, but gained an average of 112% during bull markets.
It is possible to prepare
Although you do not have the power to predict the future, you do have the ability to prepare for another crash so you can survive it unscathed. To start, have about six months of essential expenses in an accessible savings account. This way, if you lose your job, you won’t be forced to mine your investments and potentially liquidate some of them at a loss. Second, make sure your wallet is well diversified. Since the market is rising right now, it’s a good time to make some changes. Finally, have extra cash to invest. When stock values go down, you have a real opportunity not only to avoid losing money, but also to Craft money adding to your wallet.
It’s fair to say that 2020 has been a year like no other, and there’s no telling how the next four months and change will unfold. But rather than worrying about a stock market crash, remember that if a downturn happens, like the pandemic, it will also pass.