2021-10-19 11:31:00

Tired or stressed businessman sitting on the walkway in panic digital stock market financial backgroundImage source: Getty Images

The stock market gave Canadian investors a reminder in September of the possibility of a market crash being ever-present, regardless of how strong of a bull run it seems to be putting up. After the worst performance for the S&P/TSX Composite Index since it recovered from the pandemic-fuelled sell-off in February and March, many investors were worried about whether we were entering a much-feared market crash.

At writing, the index has recovered close to its previous all-time high. However, the fears of a market crash have not entirely subsided. Investors scared of a market pullback would be wise to make investment decisions that can help them protect their capital and achieve their long-term financial goals.

The question is, how likely is a market crash in the near future?

If only there were a way to predict market crashes. No indicator can accurately point out when a market crash will happen.

Today, we will speculate on the possibility of a market crash in the near future and what you can do to prepare for a pullback to achieve your financial goals.

Infamous October

October has often proven to be a spooky month for stock markets in the past, particularly on Wall Street, and not because of Halloween. Stocks have famously crashed in October on at least three major occasions, namely in October 1929, 1987, and 2008. October’s reputation for devastating market crashes has become a bit of a curse in the eyes of some investors.

September 2021 saw the Canadian benchmark index put up its worst performance since the pandemic began. As the weakness continued into the start of October, many stock market investors were understandably worried about a full-fledged market crash. Fortunately, the market has since recovered to better levels.

Combatting the impact of a market crash

Rising inflation rates and a slew of challenges created by the persistent global health crisis are contributing to worries about the possibility of a market crash. Whether it will happen in the near future remains to be seen, but a market crash might not have to be as devastating for investors who can keep their cool.

Just as sure as market crashes are, it is also equally true that markets always recover. Selling in a panic due to fear of losses is never a good way to go. Selling your shares in high-quality companies only makes you lose money. When you feel the urge to sell due to market downturns, remember that these crashes are short-lived.

Provided you invest in the right long-term assets, you may not need to reposition your entire portfolio to adjust to the market crash. A stock like Shopify (TSX:SHOP)(NYSE:SHOP) could even provide you with significant wealth growth and help you become a much richer investor on the other side of the crash when the dust settles.

Foolish takeaway

It is not a strategy I advise for every investor because it entails a significant degree of capital risk, but pouring more money as the market enters a downturn could be an excellent way to generate wealth. Investors who purchased Shopify shares during the market downturn in 2020 are sitting on more than twice what they invested in the company. At writing, Shopify stock is trading for $1,741.63 per share. The stock is up by over 250% from its March 2020 low.

As the world becomes increasingly digital, Shopify is expected to continue posting strong figures day in and day out. If you are willing to bear the brunt of short-term challenges brought by a market crash and have the patience to wait for long-term wealth growth, investing in a tech stock like Shopify could be ideal for you.

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