Are We Headed For Another Stock Market Crash?

Posted by Dafina Sharpe on September 21st, 2021

The stock market crash we experienced at the start of the pandemic was brutal, but the market appears to be on the upswing. However, are we are in for another major downturn before the market ultimately recovers? Find out in this article. 

Will There Be Another Major Downturn In The Stock Market?

I believe there will be another major downturn in the market before it ultimately recovers. What you can do to help you determine if the economy is on it’s way to recovery is look at the following:

• What is the underlying driver for the market crashing…and has that problem been resolved?
• How long will it probably take for things to go back to normal?

In this particular case, it’s COVID-19 why the market crashed. So now ask yourself “has the issue been resolved?” 

Meaning is there a way to test more people so we don’t get a massive spike or a second wave of people getting sick? Are there any new treatments that lowers the death rate? Are we closer to a vaccination (which will be the long-term solution)? 

Right now, it’s clear that the issue has NOT been resolved and we will probably continue to have a downward trend.

Has Anything Similar Happened In The Past That We Can Compare To?

We can compare this crash with the Great Recession that occurred in 2008. 

So for example, with the housing crisis in 2008, we understood the problem that caused the market crash was the alternative mortgages where people who were not in a good financial situation were buying houses…and then those mortgages were packaged and sold back to investors. 

Once you understood that was the problem, that problem had to be resolved…which was loan modifications, foreclosures, etc. Then it took about 5 years for things to go back to normal.

So ultimately, I do think we are in for another major downturn before the market ultimately recovers. And I also think it’s going to take a few years before the market fully recovers.

How To Prepare For the Next Major Downturn?

The best way to prepare for the next major downturn is to:

1. Make sure you have a balanced portfolio; and
2. Make a plan to buy.

It’s important for you to regularly rebalance your portfolio because it reduces your risk. Rebalancing is when you sell and buy assets in your portfolio to match your asset allocation plan. 

You want to take profits from your winners from time to time. By rebalancing your portfolio, although you give up some of the upside, you minimize your loss during the downside of a market. Since you can’t time the market, it forces you to buy low and sell high—which is how you make money in investing. 

Finally, you want to make a plan to buy more stocks during a stock market crash. I know it may sound crazy to put money in a downward-trending market, but you will benefit from this in the long run. When the market goes down, that’s a good time to buy high-quality companies at an excellent price. 

The economy will eventually get better over time. That’s a normal part of economic life. If you buy low now, you can sell those high-quality stocks later when times are good.

If you want to learn more about what to do when stocks go down, you can read my detailed article “What To Do When Stocks Go Down? (This Is What I Did)\".