How to Prepare for a Stock Market Crash

Knowing how to prepare for a stock market crash is a necessity for investors today. With the Fed set to raise interest rates this year, the stock market bubble could pop sooner rather than later.

A stock market crash can be devastating to your portfolio. Retirement funds lost nearly $2 trillion during the stock market crash of 2008.

Speculative investing has led to an overvalued stock market in 2016, very similar to the one that preceded the 2008 crisis. At the FOMC meeting this month, the Fed is expected to raise interest rates. Higher interest rates might be just what the market needs to collapse.

But prepared investors can do more than just protect their money. They can even profit during a market crash.

We'll show you how to prepare for a stock market crash with proven strategies, including a play that saw gains of 32% during the 2008 crash...

Proven Stock Market Crash Strategies

how to prepare for a stock market crashMarket crashes happen quickly, and investors who are prepared to act fast can come out on top.

Our first strategy is to look for safe-haven investments that will retain their value as stocks plunge. And gold has always been a stable investment during stock market crashes.

The chart to the right shows how gold performed during the 2008 stock market crash. You can see the price of gold fluctuated, but it retained its value throughout the crisis. The S&P 500 dropped by 36% during the same period between Sept. 29 and Nov. 21. Meanwhile, gold only dipped 9% before returning to its pre-crash value above $800.

Michael Lewitt, Money Morning's Global Credit Strategist, recommends investors keep between 10% to 20% of their portfolio in gold. Owning gold will help keep your portfolio stable during times of crisis.

This is why Lewitt's mantra is to "buy gold and save yourself."

And there are many different ways to buy gold. Since we are talking about stocks, one of the simplest ways to reap the benefits of the metal is through a gold ETF.

A door has opened for an ultra-rare but powerful anomaly in the stock market... It involves a precious metal, one that's considered exceedingly more rare than gold. Get all the details.

Lewitt recommends a low-fee index fund like iShares Gold Trust (NYSE Arca: IAU). IAU attempts to mirror the price of physical gold, so it's an easy way for investors to benefit from gold without having to secure it in their homes.

Owning gold is even profitable during times of market stability. Shares of IAU are up nearly 10% on the year.

stock market crashAnd there are even more profitable investment strategies during a stock market crash.

Money Morning Capital Wave Strategist Shah Gilani likes ProShares Short S&P 500 (NYSE Arca: SH). SH is an ETF you can buy just like any other stock, but it functions very differently.

SH shorts the overall S&P 500 Index. When the market goes down, SH goes up.

The chart below shows SH's performance during the 2008 stock market crash. As the S&P 500 sank, shares of SH soared.

Investors who purchased SH on Sept. 29, 2008, when the stock market crash began, saw gains of up to 32%. The S&P 500 lost 36% over the same period. These investors were profiting while the rest of the market was panicking.

But investors must buy into SH right before a stock market crash to see these gains.

Because SH will fall when the market does well, investors should not own it after the market has stabilized or during normal economic times. SH is best viewed as an insurance policy you purchase if the stock market is about to crash.

And those aren't the only ways to protect yourself from a stock market crash...

Stock market crashes can lead to huge short-term losses, but the market always rises after the crisis ends. Investors need a long-term plan when preparing for a stock market crash. That's why we put together a strategy for buying stocks that will survive a financial crash...

Investing During a Stock Market Crash

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Because the market will go up and down over the course of a lifetime, it's important to invest in companies that will do well over the long haul.

One of the keys to this strategy is finding strong companies tied to "Unstoppable Trends."

Money Morning Chief Investment Strategist Keith Fitz-Gerald coined the term "Unstoppable Trends" to describe industries like health, war, demographics, scarcity, technology, and energy. These are industries people rely on whether the economy is doing well or not.

For example, no matter how well or poorly the economy is doing, countries across the world are going to be concerned about their security. That's why the defense industry is an Unstoppable Trend.

One of Fitz-Gerald's favorite stocks from this sector is Raytheon Co. (NYSE: RTN).

Raytheon is a large, well-managed company paying consistent dividends to its investors. It's also a leading company in the defense industry with billions of dollars in contracts with the U.S. government.

If the stock market crashes, a company like Raytheon is primed to bounce back.

Since the low point of the 2008 stock market crash, RTN has exploded for over 300% gains. Investors taking the long-term approach with a well-run company in an Unstoppable Trend would have been handsomely rewarded.

Microsoft Corp. (Nasdaq: MSFT) is another leading company in an Unstoppable Trend industry. The technology industry is always evolving, but technology is integral to the functioning of daily life across the globe. And unlike other fads in the tech industry, Microsoft is proven and prepared for the long haul.

Investors who purchased MSFT at the low point of the stock market crash in 2008 have seen a profit of over 270%.

In the demographic sector, Becton Dickinson and Co. (NYSE: BDX) is well positioned to benefit from an aging population across the developed world. Becton Dickinson is an all-encompassing medical supply company, fulfilling needs for daily medical supplies and expensive medical laboratory equipment.

As populations age, they need more healthcare, making demographics an "Unstoppable Trend." BDX is positioned to fill this need.

After hitting a low during the 2008 stock market crash, BDX is up 183%.

Even though stock market crashes can lead to short-term losses, investing in strong companies in "Unstoppable Trends" is a profitable play over the long term. Coupling stocks in the Unstoppable Trends with our proven strategies is an excellent way to protect your money during a stock market crash.

A completely unique gold play is forming in the markets. And it's so rare that it's only the third time in 20 years that it's happened. If you get in now, you could see a share of upwards of $13 billion in cash windfalls. Read more.

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