How To Protect Your Money From a Stock Market Crash at Every Age
Written by
Martin Dasko
Edited by
Rebekah Evans
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According to a recent Allianz Life survey, 51% of Americans admitted to being worried about another stock market crash and 67% were worried that their short-term investments didn’t have adequate returns to fight against inflation.
Since a stock market crash is a natural occurrence in market cycles, you’ll want to focus on doing your best to successfully navigate one. We will explore how every age group can navigate a stock market crash without losing money in the long term and how people should react differently based on their life stage.
How can you protect your money from a stock market crash at every age?
Gen Z
If you’re young enough (age 13 to 28), you don’t have to worry as much about losing your money in the stock market since you have time.
Don’t Confuse Short-Term Pain With Failure
“A crash isn’t a reason to abandon investing altogether,” said Michael Rodriguez, certified financial planner (CFP) and owner of Equanimity Wealth. “If you’re investing for the long haul (and at your age, you should be), downturns are part of the journey.”
Staying consistent and avoiding the temptation to try to time the market will help protect your money. Since you have time on your side, you just have to focus on staying consistent and diversified.
Be Careful About Where You Get Financial Advice
Rodriguez noted that since so much of Gen Z’s investing information comes from TikTok and Reddit, you’ll want to be careful about accepting investing advice. If something sounds too good to be true, it usually is.
Diversify Beyond What’s Trending
While cryptocurrency and certain stocks can feel exciting because of the potential returns, you’ll want to ensure that your entire portfolio isn’t in volatile assets because a market downturn could wipe out your portfolio. “You don’t need to abandon what you enjoy investing in, but add some balance: bonds, real estate (even REITs) or just plain old boring cash can help cushion the blow when markets fall,” Rodriguez explained.
Millennials
This generation (age 29 to 44) is still young enough not to feel the impact of a stock market crash as much since they’re many decades away from retirement.
Embrace Risks
“Millennials have the ability to bear risk, they just need to develop the willingness to bear a risk and understand that they have time on their side,” said Robert R. Johnson, Ph.D., chartered financial analyst (CFA), chartered alternative investment analyst (CAIA) and professor of finance at Creighton University. “In my opinion, millennials should not try and protect themselves from stock market corrections or crashes.”
Since you’re still young enough, you don’t have to worry as much about market crashes because you could risk wealth creation by missing out on compound interest by avoiding investing.
Keep Investing During Market Swings
David Materazzi, investing expert and CEO of Galileo FX, noted that time is on your side and a stock market crash can help you. He urged millennials to keep buying through market swings by automating investing. Staying invested and buying more when prices drop can help you win in the long run.
Jordan Mangaliman, advisor and owner at Goldline Financial Services, believes that when there’s a stock market crash, you should invest more and buy more since the prices are much lower.
Gen X
This is the age group (age 45 to 60) where a stock market crash can get tricky and you’ll want to start making changes to your investments to prepare accordingly.
Slowly Rebalance Your Portfolio
Mangaliman noted that you should consider rebalancing your portfolio to manage volatility as you approach retirement. Depending on when you plan to retire and begin distributions from your retirement accounts, you may not have the time it takes for the market to recover.
Consider Switching Up Investments
Johnson believes someone in this generation should focus on establishing lower-risk equity portfolios. “Portfolios of consistent dividend-paying stocks have been shown to do better in market downturns than growth counterparts. I would encourage investors to assemble a portfolio of high-dividend-paying stocks to reduce their risk,” he added.
Materazzi shared that you shouldn’t get greedy since you’re close to the finish line. Instead, you’ll want to balance growth with safety and Diversify. Keep some cash and short-term bonds. You don’t want to be chasing hot stocks or panicking at this age.
Boomers
This is the age group (age 60 and older) where you’re either retired or about to retire, so you can’t take as many chances with your portfolio.
Actively Rebalance Your Portfolio
Mangaliman admited that a stock market crash can be chaotic for your retirement experience if you’re in this age group and relying on your investments for your income. “For retirees in this age group that need a steady stream of income from their investments, it’s crucial to rebalance their portfolio to reflect their financial goals,” he explained. You’re not trying to grow fast because the goal is to ensure you don’t run out of money.
Reduce Your Risk Exposure
“When a person is within a few years of retirement, say five years, they should begin to reduce their risk exposure in retirement accounts,” Johnson said. “A large downturn in the equity markets immediately preceding retirement can have devastating effects on an individual’s standard of living in retirement.”
As a retiree, you should maintain a healthy allocation to ensure you have the income to cover your expenses in your golden years. Materazzi suggests keeping three to five years of living expenses in cash or short-term bonds. If you have enough money invested to cover your expenses, then you’ve already won and you shouldn’t gamble.
“With all of the above groups, I would strongly urge them to develop an investment policy statement and establish an investment strategy that takes into account their unique circumstances and risk tolerance. The worst mistake people can make is to react and change their investment strategy as a result of market circumstances,” Johnson added.
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