The risks keep changing and there have been consistent calls for a stock market crash for years now, yet it never happens. You have the possibility of a Brexit and interest rate hike, both of which could rattle markets. If there’s a Brexit, then there is less chance of an interest rate hike. If there isn’t, there is more of a chance of an interest rate hike. The risks go on and on, including China, defaults in the energy sector, geopolitical tensions, excessive debt levels and the presidential election.
Is a market crash an eventuality? Maybe. Even if that’s the case, it’s probably not reason to panic.
The Silver Lining
The stock market crashed in 1929, 1987, 2000 and 2008. Every single one of those crashes were buying opportunities. There is no reason to think the next crash will be any different. The biggest problem right now is debt, which has been driven by prolonged record low interest rates and has led to reckless lending. This debt must eventually be deleveraged, which is deflationary. If deflation becomes a reality, then the next crash will require a longer recovery period than all other crashes excluding 1929. The good news is that a well-diversified investor should be able to weather the storm, especially if that diversification includes cash. (For more, see: 4 Ways to Survive and Prosper in a Bear Market.)
When high-quality stocks are unfairly punished, it increases investors' buying power, which should lead to significant long-term appreciation opportunities. In the meantime, whatever positions an investor has in any resilient dividend-paying stocks will provide them income while they wait for the rebound. In the end, it’s a win/win.
If you’re wondering what stocks fall into this category, you might want to consider beginning your research with Johnson & Johnson (JNJ), Microsoft Corp. (MSFT), General Mills, Inc. (GIS) and Dollar General Corp. (DG). These are just a few examples. (For more, see: Market Crashes Tutorial.)
Dan Moskowitz does not have any positions in JNJ, MSFT, GIS or DG.