Ask HN: Are you preparing for a market crash? How?

58 pointsby ethanpilover 4 years ago

I see a lot of posts and comments here HN "predicting the inevitable" and I'm wondering what market strategies you are employing to prepare?

36 comments

LatteLazyover 4 years ago

Fyi, people have been predicting the crash for about 12 years now. I'm not saying their won't be another crash. It's just that anyone claiming they know when it will be is either lying or a 1-in-a-million genius who could make a fortune working for a hedge fund but for some reason is giving the information away for free on HN...I have a share portfolio that's 70/30 stocks/bonds because that suits my age and risk appetite. If it crashes I can live with losses, if the market goes up I can live with the missed opportunity.I have some "gambling" money in a separate account that I buy risky stuff with. If I lose it all, cest la vie.That's all anyone can do really.(Edit, I should have been clear: my portfolio is in index funds, not individual stocks. The "gambling" money is in individual stocks ONLY because its gambling money not a real investment. Index funds are where 95% of us should be with 95% of our case IMHO.)

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snowwrestlerover 4 years ago

I guarantee that the market will crash. I just can’t guarantee when, and I can’t tell you how much gain you’ll miss by investing conservatively until then.I’m prepared for the risk of a market crash by maintaining a market posture that matches my risk tolerance and investing horizon.Edit to add: “are you preparing for a market crash?” is another way of saying “are you confident you can time the market?” I’m not.And I think that if someone could confidently time the market, they would be unlikely to be vocal about it. Announcing the future if the market is likely to change it.Honestly I think that’s what some crash predictors are trying to do. They’re long bitcoin or gold, or short the market, and if they can get everyone else to go along with them now, they’ll make money now.

mabboover 4 years ago

We prepare for a crash by having different goals than everyone else. We don't care about making as much money as possible.My wife and I have made good money and instead of investing it or keeping it in my company's stock (AMZN, great investment right?) we've cashed all of it in ASAP and paid down the mortgage. Sure, some RRSPs and TFSAs (401k and roth ira equivalents), but for the most part it's just been aggressively attacking the mortgage.The bank lets us make double payments, with the extra going to the principal. It also lets us dump 10% of the total loaned amount once per year. And my wife and I have done this all aggressively. We borrowed nearly half a million CDN$ because Toronto housing is stupidly expensive, and we'll have it paid off in the 7th year.If the markets crash, we'll be living rent/mortgage free (or close to it), and can invest all our income at the bottom of the crash. If they don't, I'll still be rent free. If one of us loses our job, we can refinance the mortgage, pay the minimum, and get by on one income. We even keep a cushion in our bank account equal to 6 months bills and base mortgage payments.Our goal is not to make as much money as possible. It's to minimize the risk that we ever go broke, that we ever need to worry about money.My father gave me a piece of advice once that's stuck with me: if you earn an extra dollar, you have to pay tax on it. If you reduce your expenses by a dollar, you get to keep it all.

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alflover 4 years ago

I've done well with rolling short term call options to catch upswings and long term puts to catch crashes. Essentially: straddles/strangles with a long-term put leg.But consider that maybe the markets aren't the best place for value creation right now. The big economic question is M2 inflation. It's possible that the markets just flatline for twenty years to soak up all the money.I'm long-term bullish BTC, but concerned about its mid-term (causal?) correlation with Tether.I'm buying capital assets that inflate along with M2 and building productive assets that generate economic value, regardless of how that value is denominated.

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tchallaover 4 years ago

You prepare for a risk by remaining within your circle of competence. That means, you never invest equity that you need in short-term span. Second, you make sure that your equity investments are diversified. Third, you only make equity investments if you understand - if not, you stick to diversified funds.I'd like to quote Buffer from his Berkshire Hathway 2013 shareholder letter> Most investors, of course, have not made the study of business prospects a priority in their lives. If wise, they will conclude that they do not know enough about specific businesses to predict their future earning power.> I have good news for these non-professionals: The typical investor doesn’t need this skill. In aggregate, American business has done wonderfully over time and will continue to do so (though, most assuredly, in unpredictable fits and starts). In the 20th Century, the Dow Jones Industrials index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st Century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.> That’s the “what” of investing for the non-professional. The “when” is also important. The main danger is that the timid or beginning investor will enter the market at a time of extreme exuberance and then become disillusioned when paper losses occur. (Remember the late Barton Biggs’ observation: “A bull market is like sex. It feels best just before it ends.”) The antidote to that kind of mistiming is for an investor to accumulate shares over a long period and never to sell when the news is bad and stocks are well off their highs. Following those rules, the “know-nothing” investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results. Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long- term results than the knowledgeable professional who is blind to even a single weakness.<a href="https://www.berkshirehathaway.com/letters/2013ltr.pdf" rel="nofollow">https://www.berkshirehathaway.com/letters/2013ltr.pdf</a>

joshfraserover 4 years ago

Money printers are going brrrr all over the world. Bitcoin, gold and equities are all good inflation-hedges. Cash is trash. Make sure you own things instead.

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champagnepapiover 4 years ago

100% long US equities. Dollar cost average. If anyone is fearful of a crash buy downside protection with put options to cover your long. Although why bet against US business in the long term (20+ years)?

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throw0101aover 4 years ago

If you are feeling nervous about a possible drop in your portfolio's value, perhaps your current asset allocation may not be well-suited to your temperament: being able to sleep at night has a value just like stock market returns do.Consider liquidating some of your equities and moving to a higher percentage in bonds/fixed income:* <a href="https://awealthofcommonsense.com/2020/08/why-would-anyone-own-bonds-right-now/" rel="nofollow">https://awealthofcommonsense.com/2020/08/why-would-anyone-ow...</a>If 100% stock, or even 80/20, is too much, then perhaps 70/30 or 60/40 may be better.Further, should a crash occur, you can use your bonds to rebalance. So if you have a 60/40 and equities go down (which generally also means bonds go up), you can cash out some bonds (sell high) to get more equities (buy low) to get back to the desired 60/40:> Bonds can be used to rebalance. When the stock market sells off that’s the time you want to dive in and buy with both hands. The only problem is you need capital to buy. That could come from new savings out of your paycheck or a cash hoard or the bond portion of your portfolio.Doing this during the S&P 500's so-called 'Lost Decade' from 2000 to 2009 would have given you much better returns than 100% equities:* <a href="https://www.forbes.com/sites/investor/2010/12/17/the-lost-decade-was-a-golden-age-if-you-rebalanced/" rel="nofollow">https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...</a>

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grumpleover 4 years ago

We’ve been saying it for years. With governments printing money (even electronically), that seems unlikely. We’re at more risk of high inflation making our cash worthless and our salaries horribly out of sync with needs. Hyperinflation could also cause economic collapse, but it’s different than any crash we’ve seen in the US.There’s a lot of uncertainty. Diversify. Dollar-cost average your purchases and sales.

wdr1over 4 years ago

I don't believe I can time the market.In 2008 I learned my lesson. I had switched jobs with options that would expire 90d after I left. So I exercised them & put a decent chunk of change in the S&P500 somewhere in late summer.Of course, this was just before the '08 crash, and over the next few months I watched as my investment was cut in half. I didn't see, but I hold off investing more. My only regret? Not investing more.Earlier this year, after COIVD hit, a lot of friends started to sell. It was obviously too late to avoid the initial damage, but would avoid any further losses.Me, I just kept buying. I vest stock from my employer monthly & the proceeds go to the S&P500. I'd be doing it for years, and having learned my lesson in 2008, I stayed the course. I had no idea what would happen. I was fully aware the market could drop further in late 2020. But since my time horizon is a bit out there, I figured I'd be able to recover.It ended up a pretty good year for me, whereas not-so-great for my friends.

sacman08over 4 years ago

Click titles, possibly? Last market dip was Mar 2020, before that was 2008. They talk about it all the time. Why is the market so high? my theory is lots of people on computers at home that have time and extra money to invest. What to do? Hold investments that you have and buy more when it drops. I made 14% last year from buying after the big dip in March.

mshronover 4 years ago

Don't try to time the market. Read a book like "All About Asset Allocation", recognize that every time feels unique but it's really not, and choose a mix of assets that reflect your risk and reward profile. It's not rocket science.If you've got 10+ years, keep it mostly in stocks. If you need it sooner, keep it mostly in bonds. Trust in the power of compound interest.Prefer assets that have a logical reason to go up based on history, not fancy. Businesses and governments pay back bonds from their revenue. Businesses are worth more over time from improvements in efficiency and scale which raises the stock market. Stay away from assets that are basically speculative (gold, crypto, oil, metals, real estate). History shows that speculative investments tend to just track inflation over time, but since they're noisier people can find all kinds of short term patterns to justify investing. Don't fall for it.

giantg2over 4 years ago

I'm not really preparing with anything special.It's always a good idea to have diversified assets, even if some of it is obscured by a holding company (REIT, metals, etc). Holding a small amount (5-10%) of "cash" can be good if theres a downturn so you can buy deals or use it for emergencies. Owning real property or other physical assets is good too.I don't think we'll see a big crash soon. The Fed has created a ton of money. If we start to see rate increases, we might start to see money rotate out of equities, but we should also see inflation. We might also see some tech stocks burst (Tesla especially).If you look at projections or past case studies, they seem to indicate that if you create a diversified portfolio and don't try to time the market, then you have better returns than trying to time the market. Of course you can always get a financial advisor rather than listen to random people on here.

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fallingfrogover 4 years ago

My 401k has been all t bills since January 2018. Since then it’s been a super rocky ride for stocks, and I’ve skipped both massive crashes and stupendous surges- feels like an equally risky move to just keeping everything in stocks. But, I’m not going back in until valuations go back to some kind of sanity.

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brunoacover 4 years ago

Here is some facts- There was a massive increase of money supply last year. That combined with the restrictions imposed on our economy by the pandemic means prices will certainly go up and purchasing power go down- There are many indicators telling us the stock market is overvalued. Some of them: Warren Buffet indicator (cap-to-GDP), ev/ebitda, Shiller P/E, ...- Commodities are historically at a low priceYou should adjust your portfolio with the reality of the asset class (store of value, stocks, bonds, crypto, commodites, real state, ...).You cannot predict if a crash is coming or not. And you should not. You should adjust your exposure related to risk. The greater the risk, less exposed you should be to that asset. It is not binary.Right now- Stocks are risky- Gold and BTC as store of value to protect against inflation, not so risky- Silver, oil, and other commodities, not so risky- Bonds seems very risk also- Real state I have no clue

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vuciv1over 4 years ago

I don't know. I am a 22 year-old software engineer who has never had money before. I have been maxing out my 401k and my Roth IRA.My 401k, upon my (fiduciary) financial advisor's advice, is 100% in Vanguard's 2065 retirement date. I consider this my conservative account.My Roth IRA is pretty risky, but I am allowing a high risk tolerance because of my age. I am about 50% in various ARK ETFs, and the other 50% are in long term stocks I believe in. AMD, SNAP, etc..And then I have complete $1000 for gambling in robinhood that i refuse to put more money into. I just buy weekly/monthly options with this account.I don't know where I was going with this. I just don't really know what I'm doing if I'm being honest, unfortunately.

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akorover 4 years ago

For people who advocate purchasing depressed assets if/when things take a turn for the worse how do they hold the "cash". It seems the choices are lose cash to inflation or put it in some investment vehicle that ties up the cash for some period of time or has a different risk profile. I've heard some people advocate against never holding cash and borrowing against assets (ex: real estate) but that puts you at the mercy of the lender. If you hold literal cash what percent of the total portfolio makes sense? TIA

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zieover 4 years ago

I'm totally fine with the crash, it will be good for me, as I'm still buying equities, I'm not yet in the selling phase of my investment life. So I'm happy to buy equities at a discount!I'll be less happy when I'm in the selling phase of my investment life(i.e. retired), but by then my % in equities will not be as high as they are now, so it won't matter as much if a crash occurs as I'll have much better downside protection(i.e. safe assets).

ricardonunezover 4 years ago

Stocks mostly and parked cash on GLD, BND, and BNDX. I sold all the stocks in February and parked it in GLD which was great. Got back into stocks in the summer, so was a good twelve months. One thing, time in the market beats timing the market, I just got “lucky“ because things were obvious getting worse early in the year, the decisions weren’t difficult. As for a possible crash, I’ll park some cash maybe in BND and wait for opportunities.

ascalesover 4 years ago

Your preparation should depend on what kind of time horizon you're dealing with. Long term horizon? Be aggressive. Short term? Be conservative.Trying to time the market typically results in smaller gains (larger losses) than just going with it. I think there are some overvalued sectors, but I'm overall pretty bullish. We might see a "true" crash if we uncover some fundamental flaw with the banking system.

phreezaover 4 years ago

I bought a house with a mortgage, and while that is not the primary reason for buying it, I suppose it is an inflation hedge of sorts.

drcodeover 4 years ago

50% stocks, 50% cryptoThough this is not a failsafe solution, as the two have been often correlated lately. Also, it requires a crazy high risk tolerance.The problem is that I worry any market crash would be associated with inflation in the current economic environment, so the old solution of going long on cash/usbonds doesn't seem viable to me anymore.

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playingchangesover 4 years ago

Classic crash prep strategies:1. Hold cash, deploy at bottom. 2. Hold long dated s&p put options. Sell at bottom.Problems with these strategies:1. Where is the bottom?

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seanwilsonover 4 years ago

What could/would governments do if there was a huge crash? Don't they have huge incentives to change the rules to prevent/undo a crash because of voters who care about their pensions, rich people with political leverage, and because a lot of politicians own shares themselves?

RickJWagnerover 4 years ago

Of course. Always.Using Boglehead thinking, before a crash the right thing to do is maintain a proper Asset Allocation. After the crash, rebalance and keep the same AA.Bogleheads know that nobody can time the market. All you can do is manage your portfolio with regard to your tolerance for risk.

cbm-vic-20over 4 years ago

Discounted stocks going on sale? Great, time to load up!

fiftyacornover 4 years ago

I'll leave it in trackers a d ignore it

nevineraover 4 years ago

By steeling myself not to pull out any money when it happens. Don't time the market.

vbtempover 4 years ago

Wow, there are a lot of people making some very extreme and/or horribly informed commentary here.There is no way to predict the future. In general, simply keep certain principles in mind.1. Avoid "terminal conditions" - i.e., you lose all your money on an asset that goes bust and you have no money left to continue investing. I.e., Being 100% in Bitcoin or in your company's RSUs or options.2. Minimize downside risk - Related to the first, avoid situations where you may incur large losses from having certain asset classes suddenly lose most of their value (e.g., having most of your money in the NASDAQ in 1999).3. Keep some upside risk, however. Own some TLSA and Bitcoin (among others), but not too much. A small slice of your overall portfolio.4. Have a balanced, diversified porfolio, even when it feels wrong, purchase under-performing asset classes. Typically, while reasonable people can have reasonable differences in opinion over precise allocations, one should have some commodities (Gold, silver), US equities (mix of growth and value, small and large cap), International equities (to include developing countries), as well as a mix of US and international government and corporate bonds, as well as a slice of cash. Real estate equity (home equity and or REITs should also be a part).For that last part, especially, I frequently shill for the Schwab intelligent portfolio. You just put in your cash, and it will - in a very transparent way - allocate it to the proper asset classes and keep it balanced.Of course, all the above assumes you have wealth already you are trying to preserve and grow. If one is just getting started, the advice above isn't reasonable, but that wasn't the topic brought up by OP.TLDR, preparing for market crash means at all times - good and bad - keeping all my assets in proper proportion to one another, with an element of cash to be able to purchase more if any drops significantly.

CodeGlitchover 4 years ago

Buying more toilet roll.

intrasightover 4 years ago

me:50% equities (where gains are derived)25% gold (assumption that gold doesn't "crash")25% cash (dry powder)

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nojitoover 4 years ago

Once the vaccine gets out to the masses, the economy is going to surge like no tomorrow. There is so much idle cash lying around.

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bigmoe83over 4 years ago

High risk small cap stocks

sys_64738over 4 years ago

Ca$h is king.

nathiasover 4 years ago

100% crypto

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user_501238901over 4 years ago

There will never be a market crash, unless people stop putting in their work hours (the only things to cause this would be a major global war, natural disaster, or a black death -scale pandemic)As long as work continues, there is still massive economical growth potential remaining as like half of the global population still barely participates.I'm talking about a long-term crash(5+ years) btw. Minor dips don't matter in macro scale

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