If you haven’t been living on a desert island, you should be aware that practically every day, we are barraged with messages warning of an imminent meltdown in the stock market. If you have, then you’ve been living under a rock.
When I searched for’stock market’ on YouTube, the first five videos that came up were all about how bad things are going to get in the future. However, none of these movies were geared toward assisting viewers in becoming aware of what actions to take in the event that the stock market does experience a pullback or crash.
The other major concern that the entire world appears to be concentrating on is AI, and many people are using ChatGPT to seek advice or ask questions related to this topic. I did what I believe many others are already doing, which is to ask Chat GPT to write a blog post on the three things I could do to avert a crash in the stock market. I believe this is something that many others are doing as well.
The report was extremely disturbing because none of the information or advice that it gave was useful in order to control or prevent a crash. This made the output extremely alarming.
ChatGPT suggested 3 things
- In the first place, it suggested that I spread out my investments and shared the age-old proverb that cautions against putting all of your eggs in one basket. If you don’t move your money out of stocks and into cash or real estate before the crash begins, no amount of diversification will assist you protect your wealth from loss in the event that the stock market crashes. Sadly, this is not how investors think, which is particularly problematic given that the stock market is typically very bullish just before a crash begins, and investors are hesitant to abandon the market because they are generating profitable returns.
- It then recommended that I rebalance my portfolio on a regular basis to prevent having an excessive amount of exposure to a single asset. However, doing so would merely increase both your fees and risk. I am not in favor of rebalancing while the market is rising, but suggesting that you should do it when the market is down or when there has been a crash has left me a little confused.
- The final piece of advise, which may have been the most helpful of all, was to take a long-term view of things. However, this piece of advice also included a suggestion to dollar cost average, which is the worst thing you can do for your portfolio during a crash in the stock market.
No one knows with a high degree of precision when a collision will occur. In light of this, it pays to be a Boy Scout and be prepared, as this will enable you to manage your stocks in the event of a significant market decline.
No one appears concerned when the stock market is rising, but regardless of the market’s trajectory, you should always have an exit strategy in place in case your stocks fall. This is straightforward to implement with a stop loss because it reduces your adverse risk.
Although another stock market collapse is inevitable, we do not know when it will occur. If you’re worried right now, you need to make preparations so that if something does occur, you’ll know precisely what to do and how to react.
