As our colleague Sean Williams writes: “At no point over the past 60 years has there been a bear market that didn’t correct between 10% and 19.9% at least once within three years of hitting a bottom.
There’s good news about these crashes, though: The stock market has always roared back to even higher highs, which is good news for investors who know the secrets to prospering in the market, even when the bear is striking.
The better and more reliable dividends are almost always that way for one big reason — they’re from companies that have proven over the years that they can make money even during the bad times.
A business that can regularly produce piles of the green stuff is in an ideal position to fund a healthy dividend and to at least sustain it during the lean times.
For any PC user, Microsoft products are nearly unavoidable — when was the last time you used a PC without Windows, after all? And while the company periodically tweaks and updates Windows, the costs of this maintenance and development are peanuts compared to what it has historically charged for it.
While some Dividend Aristocrats are better investments than others, all have proven to be resilient, and many will provide good shelter in a market crash.
I’m thinking, in particular, of real estate investment trusts , which are obligated to pay at least 90% of their net profits out as dividends.
Sure, that’s great advice, but how do you know when that occurs? The truth is that no one can time the market, and if you try to, you’ll quickly discover firsthand that it’s almost impossible — especially if you wind up losing money by trying to trade stocks.
However, during a stock market crash, you have a great opportunity to purchase stocks that could be 10% to 30% or more off their highs — and you can grab some great companies at a relatively low price.
Not the cash that you need to pay your monthly bills , but money above and beyond that so you can buy crash-created bargains.
But remember — you can’t time the market, so you don’t have to buy a company at its lowest lows — just at a price that’s reasonable, especially if the stock had been trading in nosebleed territory.
Opportunity costs money to capitalize on, but with cash in the bank and a stomach of steel, you can buy great stocks at low prices to hold for the long term.
On the flip side, with most gambling, each deal of the cards or roll of the dice is generally a discrete win-or-lose event, and when you lose, your money is gone.
In addition, when you’ve only got money you won’t soon need invested in stocks, it simply gets easier to be rational when faced with a market that’s moving sharply against you.
With this in mind, a strong guideline to follow is that money you expect to spend within the next five years does not belong in stocks.
If the market turns sour, however, you’ll have a much better chance of still having the money you need when you need it.