The short answer is yes. We should all always prepare for a severe market turndown. To be prepared is to be forewarned. Forewarned is forearmed. Preparation prevents piss poor performance.
A downturn is inevitable. We know the market behaves cyclically, and corrections are part of the circle.
That being said, we have no idea when it's going to occur. It's like the sword of Damocles hanging over our collective heads. If we prepare, take it as inevitable, and don't freak out and sell when it happens, we can weather the storm.
It's like a rainstorm. When it occurs, we put on our inclement weather gear and go about our business.
Our investment inclement weather gear is: not investing money in the market that we will need soon, researching the companies and funds we invest in, and not selling when things go south.
It's how stoic philosophy prepares us for the unanticipated, so we don't feel ambushed. We know we will experience problems and disappointments. We just don't know what and when. So we prepare as good stoics, and when they happen, we calmly acknowledge them and recognize that this is one of those things to which we have acclimated ourselves. A market crash is no different.
What goes down, comes up again. The stock market operates on an inversion of Newton's law of gravity. Benefitting from it is a matter of discipline and patience. And growing a pair.
"In the end, how your investments behave is much less important than how you behave.”
— Benjamin Graham
Before investing, have a safety fund set aside, pay off your credit card and consumer debt, and start a side hustle. De-risk your life and spending.
With all that being said, there is no way of knowing when a market crash or downturn will occur.
There are a lot of pundits that will sound the alarm. They will have an analytic thesis about why now is the time to get out of the market. One or some of them will be right. A broken clock is right twice a day (unless it's European time, then once a day.)
These prognosticators have a vested interest in being chicken little. The right one will get high visibility for the next cycle as an authoritative voice. "Tonight we have with us so-and-so, who predicted the 2008 crash, or the dot-com bubble burst." The publicity helps them sell merch or consult.
Media and writers also have a vested interest in doom and gloom. A clickbait headline draws in readers (I did it here, which is why you are reading, but I intend to deliver some valuable perspective.) Reader's eyeballs translate into money.
Take it with a grain of salt (what does that saying even mean?) when you see the next pundit proclaim immanent market doom. And keep track of who says what, so you can gauge their credibility in the future.
That is a crucial point. The cost of wrongly predicting a market crash is low for someone's reputation. But the value of being right, even though there is a low probability at any time, can be career-making.
It can make personal economic sense for someone to regularly predict a downturn like a broken clock and point to when they are right.
And they can always explain away tomorrow why what they predicted yesterday didn't happen today. Prediction is an asymmetric game.
It all comes into focus after the fact, and many will show post-event why all the indicators were there and how the stars had aligned, and all these obviously predictive indicators.
Everything looks obvious after the fact.
This screed is all preamble to the big takeaway: think for yourself. Think in bets and probabilities. Keep track and measure your results and the outcomes of your positions. Extract lessons from what happens, and you will learn and get better over time. Expertise can come from the gradual accumulation of many modest insights.
Do your own independent thinking. Be the chess player, not the chess piece.
Think about the alternatives if you were to listen to all the market doomsday advice. Is the best thing to do cash out and take your money and hide it under the mattress?
Inflation erodes the value of money. Putting it in the bank gives no interest income anymore. Bonds provide little return. Gold might be a store of value, but it is not an income-producing asset. Cryptocurrencies might be gold 2.0, but they are speculative and risky.
There is no alternative. The stock market represents your best bet for creating wealth.
If you want financial independence, you have to put money to work for you. Everybody who really makes money at some point owns a piece of a business or some intellectual property. You won't become rich trading your time for money.
Real estate investing is an excellent way to diversify but only in residential properties. The office market may never come back, and bricks-and-mortar retail is doomed.
And with residential, be prepared for deferred maintenance costs and calls from tenants to fix the air conditioner and toilet. Keep your toolbelt handy.
Real estate is illiquid. Stocks are liquid, and they don't request you fix the sink.
Stocks are where it's at. If you heed the warnings and pull your money out and wait on the sidelines, you run a significant risk of having the market run away from you and paying more to get back in. That is a legitimate FOMO.
It's not timing the market but time in the market.
Think for yourself. Get better at doing research and recognizing the products and services you use, and understanding the companies behind them.
Incredibly, we can identify stock opportunities and invest in companies, and become part owners. That, to me, is amazing. It seems like the ultimate thing that would be hoarded by the elites and blocked off from access to you and me. You can buy a seat at the table. You can have Warren Buffett and Jaime Diamond and Elon Musk and Zuck working for you. As they succeed, you succeed.
Investing is an open secret. The fact that we can participate in stock investing is an opportunity that I find absolutely remarkable.
If you are in it long enough, there is a good chance you will get lucky and experience a rise. Energy, thrift, and diligence are how wealth is built, not dumb luck.
But prepared luck does play a role, many times a big one.
To attract good luck, it's necessary to take advantage of opportunities. Try to take advantage of the best opportunities as they come to you.
"The fact is that in order to do anything in this world worth doing, we must not stand shivering on the bank thinking of the cold and the danger, but jump in and scramble through as well as we can."
― Sydney Smith
Good luck often follows opportunity but seldom the other way around.
The goddess of good luck favors action. The stock market is an opportunity.
As Warren Buffet said, "Opportunities come infrequently. When it rains, put out the bucket, not the thimble."
And when it rains, be prepared with an umbrella and galoshes.