Many financial experts are wary of an imminent financial crisis is on the horizon. The frequency of major market crashes has increased over the past few decades with the most recent being the dot com bubble in 2000, and the housing bubble in 2007.
With massive government borrowing, a potential for a cyber 9/11, inflated market and real estate prices, and increasing burden of student loans, the next market crash could take many forms. It’s questionable whether the government to provide much bail out assistance with the increased national deficit. Also, it’s difficult to predict if or when a market crash will occur, how devastating the effects will be, or what sectors will be hit the hardest.
The best thing you can do to prepare is be diversified, and make sure the level of risk you are assuming is commensurate with your age, and the age you would like to retire. If you’re young enough, a market crash could be a big opportunity. You’re young enough to recover from the shock, and take advantage of low stock prices before they return. My college economics professor likened it to stocks being on sale.
If you’re closer to retirement or have low tolerance for risk, there are things you can do to protect your income. Look at a combination of bonds, treasury bills, or money market funds. These won’t provide much of a return, but the risk will be negligible in the next market crash.