Buy Bonds during a Market Crash
Government bonds are generally considered the safest investment, though they are decidedly unsexy and usually offer meager returns compared to stocks and even other bonds.
Short of a recession — a very real possibility — consensus estimates are for about 5% earnings growth (opens in new tab) for S&P 500 companies in 2023. That's certainly less than what it was in years past, but still respectable.
Fly to Safety
Whenever there is real turbulence in the markets, most professional traders move to cash or cash equivalents. You may want to do the same if you can do it before the crash comes. If you get out quickly, you can get back in when prices are much lower.
Bonds: Bonds are often considered safe investments because they are less volatile than stocks. When the stock market crashes, bonds tend to hold their value better than stocks. Cash: Cash is another safe investment because it doesn't fluctuate in value like stocks and bonds.
Healthy large cap stocks also tend to hold up relatively well during downturns. Investing in broad funds can help reduce recession risk through diversification. Bonds and dividend stocks can provide income to cushion investors against downturns.
What are the safest types of investments? U.S. Treasury securities, money market mutual funds and high-yield savings accounts are considered by most experts to be the safest types of investments available.
Investors who experience a crash can lose money if they sell their positions, instead of waiting it out for a rise. Those who have purchased stock on margin may be forced to liquidate at a loss due to margin calls.
Holding long-term fixed-rate investments, such as long-term bonds, fixed annuities, and some types of life insurance policies, during inflation can be bad because their returns may not keep up with inflation.
For security purposes, this money should be kept in a bolted down safe with any other valuables in the home, McCarty said. “Make sure the safe is fire and waterproof to avoid any damage. Make sure you deposit and replace the money on occasion so that the bills don't get too old.”
Despite the recent uncertainty, experts don't recommend withdrawing cash from your account. Keeping your money in financial institutions rather than in your home is safer, especially when the amount is insured. "It's not a time to pull your money out of the bank," Silver said.
While 7% with Landmark Credit Union is the highest available interest rate, other high-yield savings accounts exist and may be more worth it based on each bank's unique requirements.
If you have saved enough and have other assets that generate income for you, this is the right time to buy more stocks. The reason for this is simple, a stock market crash signifies all the prices are down and this is the perfect opportunity to buy low and sell high.
Invest in sectors that perform well in recessions
Even amid high inflation, people still need gas, groceries and health care, so things such as consumer staples and utilities usually weather bear markets better than others.
You can keep money in a bank account during a recession and it will be safe through FDIC insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.
Currently, the consensus estimate is for an 8% contraction in the growth rate, followed by a 6% contraction in the second quarter. For calendar-year 2023, the consensus earnings estimate is for a 2% contraction. But that estimate is still coming down, and based on historical patterns, could continue to do so.
It doesn't make sense to take all your money out of a bank, said Jay Hatfield, CEO at Infrastructure Capital Advisors and portfolio manager of the InfraCap Equity Income ETF. But make sure your bank is insured by the FDIC, which most large banks are.
Should you pull out of the stock market? Ideally, you don't want to impulsively pull your money out of the market when there is a crisis or sudden volatility. While a down market can be unnerving, and the desire to put your money into safe investments is understandable, this can actually expose you to more risk.
Deposits up to $250,000 in savings accounts and term deposits with Australian banks are protected by the government, so if something were to happen to the bank (which is unlikely), your deposit would be safe.
When banks fail, the most common outcome is that another bank takes over the assets and your accounts are simply transferred over. If not, the FDIC will pay you out. Funds beyond the protected amount may still be reimbursed, but the FDIC does not guarantee this.
If you have money in a checking, saving or other depository account, it is protected from financial downturns by the FDIC. Beyond that, investment products are more exposed to risk, but you can still take some steps to protect yourself.
Millionaires have many different investment philosophies. These can include investing in real estate, stock, commodities and hedge funds, among other types of financial investments. Generally, many seek to mitigate risk and therefore prefer diversified investment portfolios.