Diversify Your Portfolio Before the Next Market Crash

A market crash is defined by a sudden and intense loss of market value. The most recent crash occurred in March 2020, when the COVID-19 pandemic started, causing lockdown orders and business closures that led to concern about the economy. The S&P 500 (^GSPC) lost 34% from its February high through its March low, making it the quickest crash on record.

The index reached a new high just four months later. To be prepared for market crashes like this one, smart investors should diversify their portfolios by holding onto stocks and scouting for bargains. This means not putting all eggs in one basket and avoiding concentrating investments in one category or stock type.

For example, high-growth tech stocks can be risky themselves and may move in cycles. Some companies like Global Crossing went bust after the dot-com bubble burst in 1999, while others like Cisco Systems took years to recover. A diversified portfolio of around 50 stocks of all categories and classes provides strength for times of expansion and contraction.