If you're working a job that isn't directly related to the stock market, and are not about to retire, then you really shouldn't care if the stock market is about to crash or not.
Set up automatic investments into a Vanguard Target Retirement fund (or whatever), and know that whenever the next crash does come, you'll get an exceptionally good deal that month.
It is not so cut and dry. Here are different scenarios:
1. Public companies - They are driven by the need to enhance "shareholder value" and stock prices. In case of stock market crash, they will go back to the drawing table, re-assess their spending and cut a lot of projects, anything they deem to be not "critical". It can range from a cutting edge project, for which they don't see a pay off real soon to mundane stuff like support.
2. Startups - There are not many out there which are consistently profitable. Some of them need influx of money to keep running. A crash will cause a severe cash crunch.
3. Private Companies - Some of them might have their customers/suppliers being affected a lot.
Unlike what people like to believe stock market crash is not only about stocks. It affects a lot of things. Major one of them being money supply. Many people rely on Overdrafts or current accounts, I am not sure if that is what they are called in US, to run businesses. After crash businesses are put in a lot of pressure to up keep their accounts and run near real time cash business, something which affects a lot of things.
No such thing, except for maybe the government. If your business isn't sensitive to its stock price, its customers/suppliers/financiers are. Or their customers/suppliers/financiers are. Everything is connected, if you exist in the modern economy, you don't exist in a vacuum.
You're correct, I'm gong to edit it to say "not directly related", but the point I was trying to get to remains: don't worry about things that you have absolutely no control over and no good reason to worry about.
I'm sorry but that's just awful advice. Just because you don't have control over something doesn't mean you can't foresee it and take appropriate action to protect yourself in advance.
You cannot time the stock market. Trying to predict a crash and taking money out in an attempt to avoid losses is a recipe for disaster.
For individual investors who use the stock market for their retirement funds, the appropriate action to protect oneself from the fluctuations of the market, including crashes, is to have the appropriate retirement target set, along with the proper level of acceptable risk (which automatically allocates the funds among different asset classes). After that, it's a matter of waiting... and not doing anything rash during extreme events.
In that last article, you also see that "perfect recession timing" (looking backwards instead of to the future) actually doesn't have that much improvement over buy and hold. So for me, it doesn't seem like the return is worth the effort, so I just buy and hold.
>have the appropriate retirement target set, along with the proper level of acceptable risk
You make that sound so easy. It's not. None of the maths of retirement planning is hard - but the actual decisions really kind of are.
For example, I've got 10% in corporate debt. Is that more or less risky than Equity? What's the distribution? What's the correlation? How does it compare with Reinsurance, or Property? Is property strongly correlated with the stock market at the tails, or is it a diversifying asset class? Does my passive fund hedge currency risk? Do I want it to? Is private equity a good or a bad idea? Do I want FTSE ALL or FTSE 100?
How about looking at risk appetite. What is the most time it could take for my retirement savings to recover to inflation adjusted parity after a crash (I feel like 15 years is the historical max, but it's a vague memory). Should I look at risk in terms of retirement income or retirement date? Do I expect Annuity rates to improve (e interest rates to go up) or should I mark to current rates for planning purposes.
I think about the amount of context that trustees for DB pension schemes needed to make investment decisions that were sound, and I can't help but wonder how we've ended up with individuals making these decisions on their own.
I've long felt that outside of fees Diversified Growth Funds (Multi Asset Funds?) are a pretty good place to "inactively" manage retirement savings. After fees I'm less convinced. I suspect the Australian model might be closest to what I internally model as best?
If it's any consolation, 2008/9 proved that everything is pretty much correlated--stocks went down, bonds went down, everything went down. There were no safe havens except for massive government bailouts. To this day, the illegal acts that banks undertook to stay afloat have not been prosecuted (moving all unperforming assets to "off balance sheet vehicles" like holding companies). Also, mark-to-market accounting was suspended and has never been reinstated.
The reality is a little more nuanced, as the discussion was about the effects of stock market crashes on the real world: It's possible identify periods of high risk for stock market crashes. It's hard to make money on the stock market using this information, but you can apply it to decisions in areas of life you think would be affected by a stock market crash.
Please read the above advice! In 2008, I saw the crash coming. I got tipped off, kind of: My bank was NetBank and it was the first one to fail. I pulled all my money out of stocks and sat out the crash. Brilliant, right? Yeah, except in 2010, I didn't re-invest it! I sat on a lot of cash and missed out on tons of gains. So while I preserved my wealth (and that was dicey because Money Markets nearly collapsed and that's where all my "cash" was). Had I stayed invested I would have taken some paper losses but I would have come out further ahead by now.
My one concern is that these markets are just pretend bs because of QE and the effects money printing has had on all assets.
An expensive stock market doesn't mean you should pull everything into cash to time a crash. But it does mean (1) you should expect lower average returns over the long term, so you should plan accordingly, and (2) you should diversify across asset classes (which you should do anyway), with a lower weighting to stocks.
Many jobs are tied to the stock market that aren't obvious.
Even though the circumstances were different, in 2001 I was a contractor on Sabre's HR team. 9/11 devastated the stock, so much of the software we were building (mostly related to performance-based payouts) was no longer needed.
Set up automatic investments into a Vanguard Target Retirement fund (or whatever), and know that whenever the next crash does come, you'll get an exceptionally good deal that month.
Here's some good advice on the subject: http://www.mrmoneymustache.com/2017/06/20/next-recession/