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

Market 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.

And 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

Join the conversation. Click here to jump to comments…