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What should you do if you think a market crash is coming?

GlobalPublished 6 October 2026 · Written by BuyMeWhiskey Editorial Team · How we check facts

You cannot reliably know when a stock-market crash is coming. A better response is to check your time horizon, emergency cash, debt, diversification and risk level, then make only changes that still make sense if markets fall further instead of trying to time the top.

Next question: Should you hold off investing while money sits in a fixed-term account? →

Use Investor.gov's asset-allocation guidance to check whether your portfolio matches your time horizon and risk tolerance.

Check Investor.gov asset-allocation guidance

Run your own numbers: Compound interest and savings calculator.

A crash warning is not a trading signal

News coverage can make a market decline feel imminent even when nobody can identify the date or size of the next fall. Investor.gov says investing involves market fluctuations and that asset allocation should reflect your time horizon and risk tolerance. That makes a plan more useful than a prediction.

This matters because moving everything to cash after prices have already fallen can lock in losses. Moving back into shares later is also difficult: you have to choose another point in time, and the market can recover before you feel comfortable buying again.

Start with when you need the money

Money you may need soon should not be exposed to the same level of share-market risk as money you can leave invested for many years. Investor.gov explains that people with longer investment horizons may be more able to tolerate volatility, while people with shorter horizons may prefer less volatile assets.

That does not mean a short-term goal should automatically be held entirely in cash or that every long-term goal should be heavily invested in shares. The point is to match the risk to the job the money has to do.

Diversification is more useful than a crash forecast

Diversification means spreading money across different investments so that one holding, sector or asset class does not determine the whole result. Investor.gov says diversification cannot guarantee that you will avoid losses, but it can reduce the impact of a loss in one investment.

A fund can help with diversification, but not every fund is broadly diversified. A narrow sector fund still concentrates risk. Check what is actually inside the investments you own rather than assuming several funds automatically mean you are diversified.

Keep short-term spending needs separate

If a market crash would force you to sell shares to pay an immediate bill, the issue may be the cash plan rather than the market forecast. A separate emergency reserve can reduce the need to sell investments at an awkward time.

The right size depends on your circumstances, income stability and essential spending. There is no single emergency-fund number in the official investment guidance that applies to everyone, so this page deliberately does not give a made-up universal target.

Check expensive debt before taking extra investment risk

High-cost debt can compete with investing for spare cash. Before increasing a risky investment position because you are worried about “missing the rebound”, check whether reducing expensive debt would improve your financial position more reliably.

This is especially important if the proposed investment would be funded by a credit card, margin borrowing or another form of short-term debt. Borrowed money can magnify losses at exactly the moment the market is falling.

Rebalancing is different from panic-selling

Rebalancing means bringing your portfolio back toward its intended allocation after markets have moved. Investor.gov describes rebalancing as a way of keeping the risk level aligned with your plan. Some investors use regular intervals; others use preset thresholds.

The discipline is the useful part. If a portfolio was built around a particular mix of shares and bonds, a large rise in shares can make it riskier than intended. Likewise, a fall in shares can make the portfolio less risky than intended. Rebalancing is a rules-based process, not a guess about tomorrow's headline.

Why “sell now and buy back lower” is harder than it sounds

To benefit from that strategy, you need to be right twice. First, you must sell before the decline you fear. Then you must buy back before the recovery you cannot see in advance. Investor.gov warns that trying to time the market can lead to buying high and selling low.

There is also a behavioural problem. After a big fall, the market can feel more dangerous than it did before the fall. That can make an investor wait for “confirmation”, by which time prices may already be higher.

When a change can be sensible

Your goal moved closer and you now need the money sooner.
Your risk tolerance or ability to take losses has genuinely changed.
Your portfolio became concentrated in one company, sector or asset class.
You discovered that an investment was riskier than you understood.
You need to reduce borrowed-money exposure or another known source of financial fragility.

Those are reasons that can still make sense if the newspaper tomorrow says “markets rise”. That is a useful test: make changes because your financial plan changed, not because you are trying to predict the next news story.

A crash plan should be boring

A robust plan is usually less dramatic than the headlines. Know what cash you need, understand what you own, keep risky investments diversified, avoid borrowing to chase rebounds, and decide in advance how you will rebalance.

No strategy can remove market risk. The goal is to make sure a fall in prices does not force you into a decision you did not intend to make. If you are not sure why a holding is in your portfolio, that is a better question to answer than “Can I predict the crash?”

Illustrative portfolio after a 25% fall in the share allocation

Worked example

Illustrative example: suppose a portfolio is worth $20,000 and is 70% shares and 30% bonds or cash-like assets. Assume, purely for illustration, that the share portion falls 25% while the other portion is unchanged.

Share allocation: $20,000 × 70% = $14,000.
Illustrative share loss: $14,000 × 25% = $3,500.
Portfolio value after that move: $20,000 − $3,500 = $16,500.

The point is not that this is the next market move. It shows why the allocation matters. If the same person held nearly all the portfolio in one risky asset, the loss from a fall in that asset would be more concentrated. Diversification cannot prevent a loss, but it can change how large one part of the portfolio can make the overall loss.

Should I sell stocks because everyone is predicting a crash?#

A prediction is not a reliable entry or exit signal. Before selling, check whether your portfolio still matches your time horizon, risk tolerance and need for cash. A change that would make sense even if markets kept rising is usually easier to justify than a trade based only on fear.

What should I do if my stocks suddenly drop 25%?#

First separate a market-wide move from a problem with the individual investment. Check why you own it, your time horizon and whether the holding is too concentrated. Avoid assuming that a large fall automatically means the investment is cheap or that it must keep falling.

Is cash safer than stocks before a crash?#

Cash does not have the same short-term price volatility as shares, but it can lose purchasing power over time and may produce a lower return. The useful question is which money needs stability and which money can remain invested for the long term, rather than declaring one asset universally safer.

Should I hedge my portfolio when markets feel overheated?#

Hedging can reduce some risks, but it also costs money or changes the portfolio's return profile. For a typical long-term investor, the first checks are diversification, asset allocation and emergency cash. More complex hedges need to be understood well before they are used.

Does diversification protect me during a market crash?#

No. A diversified portfolio can still fall when markets fall. Diversification is designed to reduce the damage from one company, sector or asset class performing badly, so it can make a portfolio less dependent on a single source of risk.

Should I stop investing during a crash?#

Not automatically. If your plan is designed for regular long-term investing, a market fall does not by itself invalidate the plan. Investor.gov notes that trying to time the market can lead to buying high and selling low. Changes should come from a real change in your finances or risk level.

How often should I rebalance after a market fall?#

There is no one official interval that fits every investor. Investor.gov notes that some people rebalance every 6 or 12 months, while others use a preset percentage threshold. What matters is having a rule and applying it consistently rather than making an emotional decision after a large daily move.

Keep reading

Next question →Should you hold off investing while money sits in a fixed-term account?

Sources

Figures were checked against these sources before publication. If a rule changes, we update the page and show the new date.

General information, not personal financial advice. Rules depend on your circumstances; check the official source or speak to a regulated adviser before acting.