How to Prepare for the Market Crash by Age? (For 20, 30 to 60 Years Old)

A market crash is often a scary time for most investors. Looking at your portfolio dropping 50% is definitely not fun. But can this be avoided?

Should all investors regardless of age get fully invest and ignore the fluctuation of the market, or should we get all our money out of the stock market and wait for the market to crash?

“Investors of different ages should prepare for a market crash differently.“

A young investor and an investor who is nearing retirement have different concerns, and thus will have different priorities. Here is my take on what you can do to prepare for a market crash for investors of different ages. You can use this as a guide, but the choice is yours.

Let’s go!

How to Prepare for Market Crash By Age

“A market crash is unavoidable, it is not a matter of ‘if’ but a matter of ‘when’.”

It is almost impossible for any investors to know when a market crash is coming. In fact, not even the pros working on wall street know, otherwise we won’t see the 2008 financial meltdown which wipes out billions of dollars from the market.

But if we don’t know when the market crash is coming, how can we prepare for it?

The solution is simple, we strategist a way of investing, where we can be prepared for the market crash anytime.

How?

We allocate our investment based on risk and needs.

The young investor has years ahead of them to recover from the market crash, thus this group of investors has a high-risk tolerance. On the other hand, an investor nearing his/her retirement will have a much lower risk tolerance.

Here we will prepare each age group of investors for the market crash based on your risk tolerance level and needs:

Age 20s to 30s

Age 40s to 50s
Age 60s to 70s

1. Prepare for Market Crash for Investors who are in their 20s to 30s

Risk Tolerance: High
Debt Level: High
Years to Retirement: 40 to 50 Years

20s to 30s are the best time to invest. As a young investor, you have almost 40 to 50 years till your retirement. Your risk tolerance is much higher than investors of any other age group. But your debt level is also one of the highest amounts in the different age groups.

First, you should repay all your debts. Before you should invest your money into the stock market, you should always make sure you are free from any bad debts.

Why?

Study loans for example, generally have an interest rate of 4% to 6%. By repaying your school loan, you are basically saving yourself from paying that 4% to 6% interest rate. This is the same as investing and getting a 4% to 6% return. The difference, by paying the debt, you will surely get a positive return on investment. In our other article, we will show you, “How to get out of debt step by step“.

Next, you have to prepare an emergency fund. Ensure, you are covered financially and will not be forced to take up some bad debts which can cost you your future.

An emergency fund will not only let you sleep like a baby at night, it can actually save you from lots of financial worries.

Lastly, when the market is on a bull run, almost all good stocks are overvalued, your best action:

“Do Nothing”

Yes, you should do nothing when the market is overvalued. Avoid the greed that controls the other thousands of investors.

Instead, save up your cash in a high-interest saving account and wait for the opportunity to present itself.

When the market crash, put your money into some amazing stocks and watch it grow when the market recovers.

2. Prepare for Market Crash for Investors who are in their 40s to 50s

Risk Tolerance: Mid

Debt Level: Mid
Years to Retirement: 20 to 30 Years

At 40s to 50s, you are now at middle age and free from most debt. Most likely, you will have a sizable amount invested in the stock market. You will be having around 20 to 30 years before retirement and this is a critical time of your life.

First, you should consult a financial advisor to do a review of your investment portfolio. Unlike when you are younger in your 20s and 30s, your risk tolerance is lower, and have to prepare for your retirement. Re-balance your portfolio to keep your tolerance for risk at the most comfortable level.

Remember, the biggest mistake for investors at this age is to sell at the bottom of the bear market. Mistakes like this can affect your retirement plan and personal finance greatly. Articles here at incomebuddies.com can help you to avoid these costly mistakes.

As for retirement, remember to calculate how much you need to retire or you can check our article on “how much you need to retire” to get an idea of your final goal.

Then, ensure you will have enough cash reserve for any unexpected expenses. At this age, it is best to prepare an emergency fund of at least 12 months worth of expenses.

Why?

Your kids’ school tuition and fixing up that car that just broke down last week can be pretty expensive, and you don’t want to be forced into a situation where you will need to sell your stocks during the market crash.

Finally, set aside a sum for investing when the opportunity arises. During the market crash, you will have the opportunity to buy some of the best stocks at a cheap price. My suggestion is to buy some dividend stocks, these can help to generate passive income when you retire in the future. Check out our other post on “how to find good dividend stocks” after this.

Read Also: Ways to profit from a Market Crash

3. Prepare for Market Crash for Investors who are in their 60s to 70s

Risk Tolerance: Low

Debt Level: None
Years to Retirement: 10 Years

At 60s to 70s, you are now close to retirement or have already retired. You have worked hard for most of your life and have built a nest egg large enough to support your retirement life without worries. You have no debt in your name and are ready to enjoy the golden years of your life. Or so you thought.

The stock market has huge upswings and downswings, and it is bad for the investors who are nearing retirement age. It is also important for you to avoid some of the worst retirement mistakes.

Now, it is the time to re-balance your portfolio to the lowest risk possible.

You don’t want to have any nasty surprise where the stock market just wipes out half of your retirement fund.

You want your retirement to be worry-free and have a stable stream of cash flowing into your account. To achieve this, investing in stocks that pay dividend can be a good option.

My suggestion is to place most of the investment in low-risk, low-fee, highly diversified Exchange Traded Fund (ETFs). With an average of 2% to 5% dividend per year, these are one of the best investments you can park your money for your retirement without the worry of a market crash.

Lastly, avoid the temptation of cashing out all your investment. According to the most recent research, your average lifespan will be around 81 years old for Male and 83 years old for females. You may have another two to three decades to live. So, you need to ensure you will have enough to last you a lifetime.

Why Different Age Groups Prepare for Market Crash Differently

Millennials who are in their 20s and 30s are notorious for being optimistic and believe that everything will be okay in the future. They are also more financially vulnerable than older generations and may not have as much savings or investments to fall back on in the event of a recession.

Baby boomers who are in their 40s and 50s, on the other hand, are more experienced with recessions and may have more liquid assets, such as stocks and real estate, which they can use to protect themselves.

While the older generations who are in their 60s and 70s are moving into their retirements, they have a different objective on why they are investing. Protecting their current investment for their retirement is their highest priority.

The bottom line is regardless of which age group you are in, you need to prepare for a possible market crash.

At different age groups, investors should prepare for a market crash differently according to their priorities.

The 20s to 30s years old. You should first pay off your debt and then invest when the opportunity comes.
The 40s to 50s years old. You should ensure you have enough cash reserve for any unexpected events before investing.
The 60s to 70s years old. You should ensure your investment are protected from market crashes and set the risk level to the lowest. This is to prepare for your retirement.

Kopi Buddy is personally in the first age group and is preparing for the next market crash. If you want to know how to prepare for a market crash and profit from it, you can read the article “How to Profit from Market Crash“.

Each investor have different risk appetite and investing style.

Discover your own investing style and learn the different tips and tricks in it.

Knowledge on investment can be learned from books or articles like this one. Reading can only make you wiser and smarter so that you too may be able to make the right decision in your investment.

Will Durant Said:
“Education is a progressive discovery of our own ignorance.”

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Antony C.

Founder & Financial Writer at Income Buddies | Website | Posts by Author

Antony C. is a dividend investor with over 15+ years of investing experience. He’s also the book author of “Start Small, Dream Big“, certified PMP® holder and founder of IncomeBuddies.com (IB). At IB, he share his personal journey and expertise on growing passive income through dividend investing and building online business. Antony has been featured in global news outlet including Yahoo Finance, Nasdaq and Non Fiction Author Association (NFAA).