The ASX200 has performed nicely since July, but the S&P 500 had its biggest one-day drop since June overnight, on the back of the US elections. Prepare yourself now to survive the next market crash.
It seems pretty clear that fear returned to US stock markets overnight. A Democratic President and Senate on one hand and a Republican House of Representatives on the other has raised the spectre of more fights over taxes and spending, just a couple of short months (54 days, in fact) from the coming 'fiscal cliff'.
Are predicting the next market crash?
Hardly, but there's every chance that skittish traders will create some volatility in the next month or two as we drag slowly to a resolution.
That doesn't mean it can't happen. And the prospect of a market crash scares investors. Who can blame them? It's not pleasant to see your portfolio cut by 20% in a short space of time. people.
Stock market corrections are part and parcel of investing. We've already had one this year, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) plunging 10% from its May peak to its June trough.
At the time, it felt like the investing world was about to end. We received emails along the lines of…
"With everything going on in the economy now, is it worth pulling money out of the share market in order to buy back in a few weeks when prices are even lower?"
We suggested such a plan would end badly, and to date we've been proven correct.
The market has risen more than 9% in that time, with popular holdings such as Westpac (ASX: WBC), ANZ (ASX: ANZ), Insurance Australia Group (ASX: IAG) and AMP (ASX: AMP) faring even better. Selling in a fit of panic is never a good investing strategy.
We think that when viewed from a long-term perspective, stock valuations are attractive. There may be some short-term volatility, but if you can see through the falling share prices and keep focused on the long-term, through the beauty of compounding returns, you still should be able to generate significant wealth from investing in the share market.
Even after reading this, if you are worried about a market crash, you might want to first check out our new free report, Read This Before The Market Crashes. It could save you hours of heartache, and thousands of dollars. Click here to request your report now, whilst it's still free and available.
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Bruce Jackson is the Motley Fool's General Manager. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691)