How can I prepare my stock portfolio for a market crash?

To prepare your stock portfolio for a market crash, diversify your investments, include defensive stocks, hold cash reserves, and avoid panic selling. Having a well-planned strategy ensures that your portfolio can withstand market downturns.

1. Diversify Across Asset Classes

A well-diversified portfolio helps reduce risk during a market downturn. Consider investing in:

• Different sectors like healthcare, technology, and consumer goods.
• Exchange-traded funds (ETFs) and index funds for broader exposure.
• Alternative investments such as gold, bonds, and real estate.

2. Invest in Defensive Stocks

Certain stocks tend to perform well during market crashes. Defensive stocks include:

• Utility companies providing essential services.
• Pharmaceutical and healthcare companies.
• Consumer staple brands offering daily-use products.

3. Hold Cash Reserves

Keeping cash on hand gives you flexibility during downturns. A good strategy is to:

• Hold 10-20% of your portfolio in liquid assets.
• Use cash reserves to buy undervalued stocks during crashes.
• Avoid selling stocks at a loss due to financial emergencies.

4. Avoid Panic Selling

Selling in fear during a crash locks in losses. Instead, follow these steps:

• Stick to your long-term investment plan.
• Rebalance your portfolio instead of selling impulsively.
• Look for buying opportunities in quality stocks.

5. Follow a Long-Term Investment Strategy

A long-term strategy helps you stay focused despite short-term crashes. Key steps include:

• Investing in strong companies with solid fundamentals.
• Reinvesting dividends to compound returns.
• Periodically reviewing and adjusting your portfolio.