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Introduction
You’ve probably seen headlines screaming The Big Market Crash is Coming, which can feel alarming. It’s easy to think these warnings are meant to scare you, but that’s not my goal. I’m here to offer practical steps that can help you protect your investments and prepare for any potential downturn.
Many well-known investors and experts believe the market is nearing a peak, and a correction (a drop in the market) could happen soon. Instead of stressing about the “what ifs,” let’s focus on how you can safeguard your portfolio. This article explains why a crash might happen and outlines three simple steps to prepare for it.
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Part 1: Why a Market Crash Could Happen
Here are some reasons why experts think a crash could be on the horizon. While no one can predict the future, these warning signs are important to consider when making investment decisions.
1. Overconfidence in the Market
Warren Buffett famously said: “When everyone is greedy, it’s time to be fearful. And when everyone is fearful, it’s time to be greedy.” Right now, there’s a lot of excitement in the stock market. Many people are rushing to invest, even pulling money from their fixed deposits (FDs) to buy more stocks. Data shows that SIP (Systematic Investment Plan) contributions are rising, and more retail investors are trading in the Futures and Options (F&O) market.
Even regulators like SEBI (Securities and Exchange Board of India) and RBI (Reserve Bank of India) have expressed concern about this aggressive behavior. When everyone is overly optimistic, it leaves less room for growth, which can lead to market pullbacks. We can’t say exactly when this will happen, but it’s a warning sign worth noting.
2. Insiders Are Selling
A red flag is when company insiders—like executives and directors—start selling their shares or rushing to list their companies through IPOs (Initial Public Offerings). These people know their businesses better than anyone, and if they’re selling, it often means they believe the market has peaked.
So, if the experts running these companies are selling, it might not be a good time for everyday investors to buy more. Big investors tend to sell when they see more risk than reward.
3. The Longest Bull Market Ever
We’re currently in one of the longest bull markets (where stock prices keep rising) in history. While it might continue for a bit longer, history shows that all bull markets eventually come to an end.
As the market reaches new highs, many large investors are taking profits (selling their stocks). For example, the Nifty index has fluctuated between 24,500 and 25,400, and big investors sell each time it nears a new peak. This could mean we’re getting close to a market correction.
4. High Participation by Retail Investors
Retail investors (like you and me) are putting a lot of money into the market right now. While this may seem like a positive, it’s actually a risk. Retail investors tend to panic when the market doesn’t meet their expectations and are often the first to sell when things go south.
If the market stops delivering strong returns, these investors could rush to sell their stocks, causing a bigger drop in the market and making a potential crash worse.
Part 2: Three Steps to Protect Your Portfolio
Now that we’ve discussed why a market crash could happen, let’s explore how you can protect your investments. The good news is, you don’t need to make drastic changes. By following these three simple steps, you can reduce your risk and be ready for future opportunities.
1. Sell 25–50% of Your Top Performers and 100% of Non-Performers
First, take a look at your best-performing stocks or mutual funds. If they’ve done really well, it might be a good idea to lock in some profits. Consider selling 25% to 50% of these top-performing investments. For example, if you have ₹10 lakh invested, you could sell ₹2.5 lakh to ₹5 lakh worth of these holdings.
Next, sell off any stocks or funds that haven’t been performing well. If these didn’t do well during the current bull market, they likely won’t improve if the market drops. Selling 100% of these non-performers now could help you avoid bigger losses later.
2. Put 50% of the Proceeds into Safe Investments Like FDs or Liquid Funds
Once you’ve sold some of your top and non-performing investments, you’ll have some cash on hand. The next step is to invest 50% of that cash in safer options, like fixed deposits (FDs) or liquid funds. These investments have low risk and give you quick access to your money if needed.
For instance, if you sell ₹5 lakh worth of investments, you could put ₹2.5 lakh into FDs or liquid funds. This way, you’ll have money available to take advantage of buying opportunities when the market drops.
3. Diversify by Investing in U.S.-Based Mutual Funds
With the remaining 50% of your cash, consider diversifying by investing in U.S.-based mutual funds. Diversification helps spread out your risk, and investing in U.S. markets gives you exposure to different industries and market conditions, which can provide better long-term returns.
You don’t need to send your money overseas to do this. There are U.S.-focused mutual funds available in India that allow you to invest in the U.S. market easily.
Conclusion
While a market crash might be looming, there’s no need to panic. Instead, take these simple steps to manage your risk: Sell 25–50% of your top performers and 100% of your non-performing stocks or mutual funds. Invest 50% of the proceeds in safe options like fixed deposits (FDs) or liquid funds. Diversify by investing in U.S.-based mutual funds for better long-term returns and geographical diversity.
By taking these steps, you’ll protect your portfolio from potential market swings and position yourself for future opportunities. The key is to stay calm and make smart, informed decisions that support your long-term financial goals.