How to Prepare for Market Crash in 2023 (Survive Market Crash in 3 Steps)

If you know your portfolio was going to drop by half tomorrow, what will you do?

Do you sell all of your investments?

When the so-called expert of the stock market is “crying wolf” ever so often, it is clear that we are not 100% certain what will happen to the market’s short-term movement.

Timing the market may not be the best strategy for the retail investors like us.

If timing the market is not an option, the next best thing is probably to be prepared for a market crash.

There are often many signs of a market crash before the market crash happens.

After you notice these warning signs of a market crash, it is only right for you to be prepared for the crash. And minimize the impact of the crash on your financial health.

Why Prepare For A Stock Market Crash

Preparation is the key to successful investing. The best time to prepare for a market crash is before the market crash. Not during, not after, but before the crash. The next best time to prepare for the market crash is now!

Being prepared for the next market crash is especially important for investors who aspire to make money in a bull market, and minimize losses in a bear market.

Reacting in the moment of a market crash can lead to costly mistakes.

Often we hear retail investors recite the mantra.

‘Buy Low, Sell High!’

But in reality, what retail investors do are exactly the opposite!

‘Buy High, Sell Low!’

Understanding Greed And Fear During Market Crash

A bull market makes people greedy and want to earn more, thus buying high.

A bear market makes people fearful and want to cut losses, thus selling low.

If you want to avoid losing money because you, ‘Buy High and Sell Low’. We may have the steps for you to help in minimizing the financial impact due to the next market crash.

There are 2 Rules to investing, “Rule 1: Don’t loss money. Rule 2: Don’t forget Rule 1.”

Wisdom of Warren Buffett

Here is a step-by-step market survival guide that will show you how to prepare for the upcoming market crash that is just around the corner.

Let’s Dive In!

How To Prepare For Stock Market Crash

If you’re like most people, the thought of a stock market crash is enough to make your stomach turn. And with good reason – a crash can wipe out years of investment gains in the blink of an eye.

But while you can’t control when a crash will happen, you can take steps to prepare for one. Here’s how:

1. Know Your Finance

First, you should always consider your own goals before making any investment decision. Ask yourself these few important questions before making any drastic move in your investment portfolio:

  1. Am I in need of cash in the next One, Two, or Three years’ time?
  2. Am I saving for my kids who are going to college the next year?
  3. Am I retired, or close to retirement and this cash is for my retirement?

If you say ‘Yes’ to any of these 3 important questions, this is important. Because this article will probably help you make a better choice for your investment journey.

  • If you need cash for the next 1 to 3 years time (I will use 5 years for a safer choice), it means the stock market is not for you. A typical cycle of the stock market takes an average of 10 years, and 1 to 3 years is way too short.
  • If you are saving for your kid’s future college expenses, you should really reconsider before using the money for investing. It is really not advisable to invest your kid’s future education in a risky investment like penny stocks.
  • If you are retired or close to retirement, probably you may want to consider reducing to a lower percentage of equities, in your portfolio since they can be more volatile.

It is not uncommon for the stock market to drop 50 percent of its value in a market crash. This means your investment of $10,000 today could mean it becomes $5,000 the next month due to the market crash.

The worst market crash that occurs recently was in the year 1929, ‘The Wall Street Crash’.

During the Great Depression, the market dived 90 percent and lasted 12 years which affected the Western world.

According to statistics compiled through the different market crashes:

  • Stocks on average take 121 days, or approx. four months, to recover from a correction, where the stocks fall 10 percent or less from a high.
  • Stocks average take 22 months, or almost 2 years, to recover from a bear market, where the stocks fall 20 percent or more from a high.

Ben Graham, the Father of Value investing, and the mentor of Warren Buffett, the richest and most successful investor in the world once said:

“In the short run, the market is a voting machine but in the long run it is a weighing machine.”

Your financial situation can be very different from the person sitting next to you, know your family’s specific situation before choosing how to invest. Risk is very subjective.

If you don’t want to ‘Sell Low, Buy High’, this must be the first step you should take.

Knowing Your Finance Can Combat Fear and Greed

Fear and Greed are the reasons why people ‘Sell Low, Buy High’, when they should be ‘Sell High, Buy Low’.

Investing in a stock market is not for everyone, only those who can afford to take risks should invest.

Because “In the short run, the market is a voting machine but in the long run it is a weighing machine.”

2. Reduce Leveraged

Leverage is risky for investing. Many investors have substantial exposure to leveraged investments, such as borrowed money to invest in the stock market or in properties. When the market is good, you can earn more by leveraging, but when the market turns sour, you can lose everything; your money, your time, and your financial future.

Greed is neither good nor bad. Greed is just human nature. But being greedy before a market crash where you overleverage your financial situation is basically waiting for a disaster to happen.

Warren Buffett’s thoughts on leverage during his interview with CNBC:

“It is crazy in my view to borrow money on securities, it’s insane to risk what you have and need for something you don’t really need.”

Warren Buffett doesn’t agree to use leverage in investing in stocks even during the good times when it is a bull market. Let alone using leverage before a market crash and during a bear market.

Leverage on stocks is what causes people to end up bankrupt during a financial downturn and during a market crash. Leverage is a risk that we as prudent retail investors should not take or limit the risk during our investing journey.

During a market crash, leverage simply means:

“Turning your winning into losing, and your losing into deep in debt.’

Whatever you borrow, has to be returned, and when you couldn’t return what you have borrowed, declaring bankruptcy may be the only option left.

Reducing your leverage is an important step you should do before a market crash.

Reducing leverage is the most important step you should take right now. Especially, when you see the different signs of a market crash.

You have to get ready for the worst.

Leverage Kills

Leverage can aid you or destroy you, and this is basically summarized in a simple sentence said by Warren Buffett:

“I’ve seen more people fail because of liquor and leverage, leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.”

Warren Buffett disapproved of leverage on stock investing and so am I. Leverage can be the reason that destroys your financial health.

3. Re-Balance Your Portfolio

Rebalancing a portfolio means adjusting the weightings of the different asset classes in your investment portfolio. Rebalancing can be achieved by buying and selling assets according to your risk tolerance level.

Re-balancing your portfolio is something you should do every year and especially when you want to prepare for a stock market crash. This is what differentiates a pro-investor from an amateur.

Re-balancing your portfolio correctly can let you survive the market crash and live to invest another day.

Many who don’t re-balance their portfolio usually got hit the hardest during a market crash, which literally crashes their finances during the bear market.

An investor who is 100% invested in high-risk, high-volatility stocks will have lost their money in the stock market crash.

Investors who re-balance their portfolio and invested in a variety of investments such as defensive stocks, bonds, and other less volatile defensive investments such as gold will be impacted less during the market crash.

“The best time to re-balance your portfolio and work out your allocation for each asset class is yesterday. And the next best time is now.”

Financial Adviser

Financial advisors are the best people to get advice for your personal financial goals.

Most financial advisors have a fiduciary responsibility to their clients where they have the legal responsibility to have the best interests of their paying clients.

You can probably look for your financial adviser and request a rebalance of your portfolio to a less risky portfolio that may help you survive the market crash.

Robo Advisor

If you are invested through Robo Advisor, you can probably change your setting in your Robo Advisor platform on your own to a ‘low-risk portfolio’.

The Robo Advisor will automatically re-balance your portfolio; to expose less to high-risk, high-volatility investment vehicles, such as small-cap or penny stocks, and increase exposure to defensive investment vehicles such as gold and some certain blue chip stocks.

You can also learn more about Robo Advisor in my other Article explaining: “What is Robo Advisor? What are the pros and cons of Robo Advisor?”


Alternatively, if you love to do your own investment. And are passionate to learn the art of investing. You can do your own re-balancing of your portfolio and make the right allocation of your investment in the most suitable investment vehicle; Stocks, REITs, Bonds, Gold, and Commodities.

How you allocate your investment, depends on individual and preference, but there are some proven ways of allocation used by the pros that we may want to explore in our future articles.

PS. I will generally cash out my profit if I know a market crash is coming. How about you?

Re-balancing your portfolio keeps you on track with your goals and it is critically important to perform re-balancing before a market crash occurs.

If you don’t, you will risk seeing massive losses of money during the crash, and what’s worst, you will also miss the opportunity to fully benefit from the recovery that comes after the market crash.

The Pros Rebalance, And You Should Too

Rebalance your portfolio to ensure you will be prepared for any uncertainty that might happen in the market. A market crash or not, if you are prepared, you can sleep soundly at night.

“Prepare, Prepare, Prepare!”

Know All Successful Investors Is Always Prepared For A Market Crash

Raise and fall of a market cannot be avoided. Like gravity, what goes up, will come down.

If you want to be a successful investor in both a bull market and a bear market, preparation is the key.

In every major or minor market crash, we learn from our mistakes and make adjustments and changes.

Experience is one of the most helpful things you can have when investing, but it won’t mean anything if you don’t act and prepare yourself fully for the market crash.

Smart investors who are prepared often profit from a market crash while other unprepared investors losses all their money when the stock market crash.

Here are the 3 Steps you need to do to prepare for the Market Crash:

  1. Know Your Finance
  2. Reduce Your Leverage
  3. Rebalance Your Portfolio

Next, we shall talk about how can you profit from a Market Crash legally and morally. 

Question: “Are you prepared for the market crash?”

“It’s only when the tide goes out that you discover who’s been swimming naked.”

Wisdom from Billionaire Warren Buffett:

When times are good, everyone seems to be a winner.

When times are bad, you will know who is truly the winner.

Success is not made overnight, but through determination and the conviction to keep learning and getting better.

Here are some resources that can help guide you to success.

Getting started with one of these carefully selected books can help you increase your most important form of wealth, increase your “knowledge”.

Investing in yourself is the best gift you can give yourself today.

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