Here’s how I’d get my Stocks and Shares ISA ready for a stock market crash

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US stocks look a bit overheated, and some top pundits are predicting a new crash. That could hurt my Stocks and Shares ISA.

So what should I do?

To get some ideas, I’ve been looking at what the experts say. And, you know what? It’s mostly good.

Sell, sell…

Not that long ago, I’d have seen people urging me to sell stocks and buy gold. Or move to bonds, depending on how a thing called a bond yield curve is going.

Or that I should re-assess my asset allocation profile, or some such stuff.

Back in the old days, I’d see plenty of warnings to keep away from stocks and shares altogether, and stick to nice safe cash.

Makes no sense

But that means I should stop buying shares when they get cheap, and put my money into something else. How can that make sense?

Now, a Cash ISA does offer a guaranteed interest rate, there is that. And right now, some of them aren’t too bad. A Cash ISA isn’t going to lose 13%, the way Stocks and Shares ISA returns did in the 2019/20 year.

Still, over a century and more, UK stocks have beaten cash savings hands down. And that’s even including the stock market crashes.

Buy cheap

Anyway, let’s turn to a thought I found from Forbes

A market crash creates opportunities, especially for savvy investors. You may be able to splurge on stocks and funds you’ve had your eyes on at steep discounts — or you can simply continue buying shares on your regular investing schedule.

Forbes

Here’s another good one, this time from Investopedia

When the stock market drops, one thing you should not do is panic. Panic leads to panic selling of your stocks, which could end up hurting you in the long run.

Investopedia

So one says buy shares when they’re cheap, and the other says don’t sell them when they’re cheap. That sounds like good sense to me. But look at the way so many did just the opposite in 2020.

Spread the cash

I see another common theme emerging. We should diversify our investments.

Well, a lot of it is advice to spread our money across different types of investment. You know, bonds, gilts, and all that stuff.

That will suit some investors — it’s all about personal takes on risk. It’s not for me, but I do rate diversification in a Stocks and Shares ISA as essential to reduce the risk from a single sector.

By simply ensuring a portfolio contains a variety of top-notch enterprises from different industries, large downturns in single positions have less of a chance of derailing an investor’s progress.

Zaven Boyrazian, The Motley Fool

Oh, that’s my one of my fellow Fool writers. Smart words.

The other side

There is another side to planning for a stock market crash, and I doubt it’s escaped anyone. There might not be one.

I’ve heard it said that for every stock market crash we’ve had, the pundits have predicted 10.

And isn’t it strange the way almost nobody manages to get their timing right for the real crashes? So when I hear the latest big noises telling us they nailed the last crash, it makes me think about stopped clocks.

Crash, or not?

So, should I prepare my Stocks and Shares ISA for a new crash? Or should I just carry on as normal?

I say yes to both. That’s because, for me, they’re the same. And in my experience, they are for most long-term investors too.

Don’t panic, buy more when prices are low, aim for good diversification, invest regularly for the long term… sounds like my perfect strategy for both market booms and busts.


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