The March stock market crash caught many investors by surprise. While some analysts had warned about the impact a virus outbreak could have on stocks, many investors thought the impact would be limited.Â
As it turns out, this was incorrect. The slump sent investors running for cover. Policymakers had to step in rapidly to restore order.Â
Nearly four months on and some analysts think we could see a second stock market crash later this year if there’s another wave of coronavirus. It’s impossible to see the future, so we don’t know how accurate these predictions are. Nevertheless, it’s always sensible to be prepared for uncertainty.Â
Second stock market crash on the horizonÂ
If there is a second stock market crash on the horizon, investors should prepare.
Preparing can take many forms. One of the best could be to stockpile cash. This may hurt returns in the short term, but storing cash might allow investors to take advantage of market declines when they arrive.Â
At the same time, it may make sense to buy a portfolio of blue-chip FTSE 100 stocks. This might not seem like good advice if there’s a second stock market crash on the horizon. But, as I mentioned above, we don’t know what the future holds for the stock market. Stocks could continue to rise from current levels. On the other hand, they could suddenly lurch lower. It’s impossible to say.Â
As such, investors may benefit from both holding cash and a basket of blue-chip stocks. Using this approach might allow investors to profit from both scenarios. A second stock market crash would enable investors to use this cash to buy cheap stocks. Meanwhile, if markets keep rising, investors would be able to profit from the growth.Â
Buying qualityÂ
The best stocks to buy in the current market may be the ones with the most robust balance sheets and stable operations.
Over the past few months, many FTSE 100 companies have updated shareholders on how their operations have fared in the pandemic. This can help investors choose companies that may continue to prosper and avoid those that may continue to struggle.Â
And as we don’t know for how much longer the pandemic will remain an issue, it might be best to stay away from companies with weak balance sheets. These businesses may not be able to keep the lights on if a second wave of coronavirus causes a stock market crash. No matter how cheap these companies look right now, it could be best to stay away.Â
So overall, while a second stock market crash might present opportunities for profit, it does not make sense to avoid the market until a decline arrives, as it may never happen.
Instead, investors may be better off using the split approach of owning high-quality blue-chips while keeping some cash on the sidelines. Doing so may help you grow the size of your financial nest egg over the long run.