4 Systemic Risks That Might Cause the Next Stock Market Cras...
4 Systemic Risks That Might Cause the Next Stock Market Crash
1. Low Interest Rates
2. Government Cash Stimulus
3. Property & Equity Bubbles
4. Inflation
Twelve years of low interest rates mean that the yields on government bonds are close to zero. This means that the extra capital available through government stimulus needs to be invested somewhere, that somewhere is equities and property. The Nasdaq 100 is up 122% since the bottom of the crash in March 2020 and up 53% from the previous all-time high in February 2020. That can be seen as an incredible recovery or the signs of an equity bubble. Median house price sales in the US (MPUS) have increased by 60%. Inflation causes stock market declines, and increasing interest rates battles inflation but causes crashes.
Generally, stocks fall in value twice as quickly as they gain value. The best price gains are longer-term uptrends over multiple years. Crashes happen quickly and violently due to the panic and fear in the market.
The simple truth is that when there is a real stock market crash, most, if not all, stocks fall. So diversification in safe stocks will not help you. The best course of action is moving your portfolio to cash.
However, there is one problem with moving to cash; it is the timing.If you move to cash too early and the market recovers quickly, then you may miss out on stock market gains.Move too late, and you will have lost too much money; in this case, you should employ a dollar-cost averaging strategy.
DCA in stock investing is a great way for long-term investors to maximize profits and lower risk while staying fully invested in the market.
Dollar-cost Averaging is a method of investing whereby an investor scales into a long-term investment with a fixed amount regularly (e.g., monthly). When the price of the investment goes down, they receive more shares for their money, and when it increases, they get less. This averages down the cost per share, promoting a successful outcome.
Investment portfolios, use dollar-cost averaging.
Ultimately, if you are caught in a crash, a great way to manage it is to use Dollar Cost Averaging and keep investing through to correction; this lowers your average cost per share and means you pick up bargains along the way.
1. Low Interest Rates
2. Government Cash Stimulus
3. Property & Equity Bubbles
4. Inflation
Twelve years of low interest rates mean that the yields on government bonds are close to zero. This means that the extra capital available through government stimulus needs to be invested somewhere, that somewhere is equities and property. The Nasdaq 100 is up 122% since the bottom of the crash in March 2020 and up 53% from the previous all-time high in February 2020. That can be seen as an incredible recovery or the signs of an equity bubble. Median house price sales in the US (MPUS) have increased by 60%. Inflation causes stock market declines, and increasing interest rates battles inflation but causes crashes.
Generally, stocks fall in value twice as quickly as they gain value. The best price gains are longer-term uptrends over multiple years. Crashes happen quickly and violently due to the panic and fear in the market.
The simple truth is that when there is a real stock market crash, most, if not all, stocks fall. So diversification in safe stocks will not help you. The best course of action is moving your portfolio to cash.
However, there is one problem with moving to cash; it is the timing.If you move to cash too early and the market recovers quickly, then you may miss out on stock market gains.Move too late, and you will have lost too much money; in this case, you should employ a dollar-cost averaging strategy.
DCA in stock investing is a great way for long-term investors to maximize profits and lower risk while staying fully invested in the market.
Dollar-cost Averaging is a method of investing whereby an investor scales into a long-term investment with a fixed amount regularly (e.g., monthly). When the price of the investment goes down, they receive more shares for their money, and when it increases, they get less. This averages down the cost per share, promoting a successful outcome.
Investment portfolios, use dollar-cost averaging.
Ultimately, if you are caught in a crash, a great way to manage it is to use Dollar Cost Averaging and keep investing through to correction; this lowers your average cost per share and means you pick up bargains along the way.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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Bigbear63 : What’s number 5 ?