Skyrocketing inflation , stretched valuations , and a critical labor shortage each could pose risks to the market on their own.
It might seem crazy to pay off debt when interest rates are so low and the market has seen such huge recent rises, but that could very well be the best time to do so.
At least for a little while, it can keep you from being forced to sell at the low due to lost income and buy you time to find alternatives.
That said, with inflation running as hot as it is and cash returns failing to keep up, it might not be a good idea to hold too much cash.
As a general rule, money you expect to spend within the next five years does not belong in stocks.
It’s OK to sell enough stock to cover the costs of what you’re buying in that window and any taxes you’ll owe on your stock sale.
Ultimately, stocks are nothing more than fractional ownership stakes in companies.
You can easily adjust your assumptions for a more aggressive growth future or a more pessimistic one as well, to get a feel for a range of potential values.
If a company you own is priced so high by the market that even your most aggressive estimates for its future can’t keep up, then it might be a good idea to sell it.
The beauty of the discounted cash flow model is that it can help you make those buy/sell/hold decisions regardless of what the overall market is doing.
With the first three options, you’ve taken great steps to protect yourself against many of the short term disruptions that can come from market crashes.
With a long-term perspective, the rest of your financial house in order, and decent valuations at your disposal, you can stay invested during and after a crash.
None of us really know when the next stock market crash will happen, but we can be pretty sure that there will be another one headed our way.
By balancing the tools you need to survive the next crash with a long term perspective for the money you’re able to keep invested, you can be prepared no matter when that crash takes place.