The Next Market Crash - 7 Ways To Make Money

What's up, you guys? It's Graham here. So I feel like it's time we address something that probably a lot of us have recently considered, and that would be the next stock market crash. After all, in the last week, the stock market has risen to brand new record highs. Interest rates have just started increasing, and across nearly every measure, the stock market is the most expensive it's ever been in history.

Even the search term "stock market bubble" has increased a hundred percent to its highest level ever recorded since 2004, meaning that people now, more than ever, are concerned that prices are rising too much too fast. So, given all the nervousness around this, let's talk about exactly what's going on, the likelihood of another crash coming sometime soon, and then what you could do about it so that you're best prepared ahead of time and can make the most of the situation.

Because I promise you, at some point, the market is going to crash again. There is going to be another bear market; there is going to be another recession. And even though we can't time it perfectly, it's important to know exactly what to expect so that when it does happen, you're not going to be caught off guard and you're going to be in the best position possible to make boatloads of money.

Do people even say boatloads anymore? I might be dating myself here. I'm getting too old for this. But really quick, before we begin, I want to thank our video sponsor today: the like button! Every 60 seconds, a like button goes without being smashed, but you could help. For the low cost of free, you could smash the like button for the YouTube algorithm, and in return, I will draw a picture of the like button as my token of appreciation. So thank you so much, and remember, you could make a difference for the like button and the YouTube algorithm just with one simple tap.

And now, with that said, thank you so much, and we'll begin. So first, in order to understand how to best prepare for something like this, we should cover the severity of the stock market crashes that have happened in the past. Because even though you might think I'm going to lose all of my money if I don't sell out immediately, the truth is, market collapses are not entirely catastrophic to the point where you're going to be left with nothing.

Now the first one we think about when we hear "market crash" is the year of 1929. During the Roaring 1920s, money was pouring out of every crevice, banks were lending money to anyone who asked, and people, for a lack of a better word, speculated too much on the stock market with borrowed money because stonks just kept going up. However, once the stock market showed even the slightest glimpse of being at a peak, people started selling off everything.

They began withdrawing their money from the banks in fear that the banks would be going out of business, but banks didn't have the cash on hand to give back to their customers. So, banks began failing and going out of business, and that led to an economic collapse where the stock market dropped 83 percent over 2.8 years. And to make matters worse, the stock market did not fully recover for 25 years.

Then, of course, as World War II ended in 1945, we saw another stock market drop of roughly 22 percent over six months as veterans re-entered the workforce, began competing for a limited supply of jobs, and the economy had to readjust without government spending on a war. Then again, in the 1970s, we saw more turbulent times; between January of 1973 and December of 1974, the stock market lost over 40 percent of its value. This occurred when the U.S. dollar was removed from the gold standard, and that led to runaway inflation.

So to combat that, they raised interest rates to help keep the value of our money intact, which inadvertently caused the price of everything to come crashing down. Then after that, we have the infamous Black Monday of 1987 where the stock market dropped over 22 percent in a single day. The exact cause of this was a little unclear, although, because they did not have the policies in place to prevent it from happening, a mixture of factors all came into place at the exact same time for a once-in-a-lifetime sequence of events that caused the worst stock market drop in history.

But we are not done quite yet because then we've got the dot-com bubble of 2001, which was caused by a frenzy of speculation for internet-related companies. People were just buying up anything they could, even if it wasn't making money because the internet was going to be the future, right? Well, that was unsustainable, and as the dot-com stocks couldn't actually make any money, they collapsed, wiping out most of their value. If you were in tech stocks back then, you would have lost on average 78 percent.

Sure enough, the market crashes continued, and in 2009 we had the Great Recession. Basically, banks loaned too much money to people who were not qualified, who then went and bought houses. And then, once those borrowers could not sustain those payments long term, they began defaulting, which then fell back on the banks, and the banks began defaulting. Those homeowners began losing their homes, and that caused the economy to collapse, and the entire stock market dropped around 50 percent in value.

Of course, the Federal Reserve stepped in to bail them out, and then we got to today. From March through April of 2020, we saw some of the worst single-day point drops in history, and from the peak, the S&P 500 dropped around 30 percent in value. But before the markets could fall too far, the Fed stepped in, lowered interest rates, put together a bailout, and within about a month, the markets began to recover.

So given all of this past history—except for 1929, because they didn't have the policies in place like we do today—the average stock market drop is roughly 39 percent and lasts an average of 22 months. But given all of this, let's talk about how likely it is to happen from here on out. Now, in terms of how often the stock market drops, it really depends on how much it drops, and the severity of each drop is broken down as follows:

We first have what's called the stock market correction, which is defined as at least a 10 percent drop in price. Now, normal volatility throughout the stock market is extremely common. In fact, since 1920, the S&P 500 has on average seen a five percent pullback three times per year. So, the next time we see the markets going down like this for a week or two straight, it's nothing uncommon and it's nothing to be concerned about.

Now, market corrections of a 10 percent drop or more are also fairly common too. On average, a 10 percent correction happens every 16 months, and throughout the last 20 years, a 10 percent drop has happened 11 times. Now, if you're anything like me and you like averages, the average stock market drop has so far been 15.6 percent and lasts for 71.6 days.

Now, after that, we move on to the more serious category, and that would be the bear market, which is defined as at least a 20 percent drop in price. According to data, this typically happens every 7 to 10 years, and when it hits, it tends to hit pretty hard. During a bear market, the stock market will drop on average 33.18 percent and falls over a period of 363 days.

Finally, we have the worst one out there, the stock market collapse. I would consider this to be a drop of over 40 percent throughout the entire stock market and not just within a specific sector. Throughout the last 120 years, this has only happened three times. So, an actual stock market collapse is rather uncommon, but it's not entirely impossible from ever happening in a lifetime.

So once we understand the differences between these and how often they happen, we could begin to come up with the best ways to take advantage of them and how to best prepare and come out ahead profitable. To start, I want to make it clear that I'm not suggesting a market crash is going to be imminent or that it's going to happen any day now.

I mean, if I could just predict one or two market crashes in a lifetime, I would probably be the third richest person in the world, and I say third because I would never want to overstep our almighty Elon Musk, who's the second richest person in the world. The point being, all we do know is that at some point in the future, the market is going to drop again, and how we plan for that is going to make all the difference.

Now, the first thing that I would do is get your two free stocks down below in the description because WeBull is going to be giving you two free stocks when you deposit $100 on the platform, and those stocks are potentially worth all the way up to $1,600. So it's basically free money! If you want free money, go and get that down below in the description and let me know which ones you get.

Okay, no, but seriously, the first thing that I would do is keep a three to six-month emergency fund at all times. Having three to six months’ worth of your expenses saved up in cash at all times is really one of the easiest things that you could do to make sure you last through a stock market drop. That way, you're not going to have to sell your investments in order to pay for your living expenses if you lose your job or your income goes down, or maybe something you don't expect comes up when the market is at a low.

The second you want to make sure you diversify your investments. Like if you're 90 percent invested in GameStop, Blackberry, and Nokia, there's a significant chance that you're going to lose a lot of money, just like tech stocks lost 78 percent of their value during the dot-com bubble. That can happen to you if you're not properly invested across different sectors and different asset classes.

The more you diversify your investments, the more you reduce volatility and lower your risk. This is something that I've done: I have 50 percent of my net worth invested in real estate, 30 percent is spread throughout about three dozen individual stocks and multiple index funds, 18 percent of my net worth is in cash, and the other two percent is in Bitcoin and Ethereum.

Should one of those markets completely fall, the others should hopefully make up for it. And if the entire market falls, I've still got 18 percent of my net worth in cash to be able to buy in at prices that are low. The third, speaking of buying in, make sure to smash the like button and keep buying in.

Listen, I know it's gut-wrenching when you see your investments drop 10 percent in value, so you buy in thinking you're getting a good deal, but then the next week it drops another 10 percent, and then it just keeps doing that over and over and over again until you want to give up. But study after study shows you that the best strategy to make a lot of money is just to keep buying in, keep holding, and do not sell.

Just like we've talked about the severity of every market crash, there is always an even bigger bull market that follows. Even though a bear market might temporarily lose you an average of 34 percent, a bull market has seen an average gain of 158 percent and lasts almost five times longer at 1,742 days.

So sure, losing one-third of your investment is not entirely uncommon, but still, every bull market comes with the opportunity to make substantially more than that if you keep buying it. That brings us to number four: don't panic sell. I've mentioned this before, but if you decide to panic sell, that could potentially cost you a lot of money. What I've seen so many times is that the psychology that pushes you to sell your investments as they start going down is the same psychology that holds you back from buying in when those same investments start going back up.

That's why it's so important not to miss out on keeping your money invested in the markets. Because every day you're out, you could potentially lose a lot more money than just keeping it invested. Like Fidelity found that over 40 years, a $10,000 investment in the S&P 500 would have grown to $697,000 if you just kept the money invested without touching it.

However, if you just missed out on the five best days over 40 years, your return would diminish by over $265,000. If you missed out on the best 10 trading days, you would lose out on $384,000. Missing the best 30 days would result in a $581,000 lost opportunity, and the best 50 days in the market over 40 years would result in almost $650,000 less profit.

That should really go to show you that statistically speaking, by trying to time the market or sell out of your investments, you risk missing out on those best days in the stock market that would severely impact your return. Next, number five: keep a steady income. My biggest concern with the stock market correction is that depending on the underlying cause, it could be associated with job loss and a reduction in income, much like what we saw recently with the illness.

The worst-case scenario here is that the market drops; you lose your job, you don't have an emergency fund, and you have to start selling off your investments at a loss to stay afloat. An emergency fund would be able to hold you over for three to six months until hopefully, the market begins to recover. But if it doesn't, you want to make sure you have some consistent income coming in so that you're able to buy back into the markets or pay for your living expenses so you don't have to sell investments if you don't absolutely have to.

And finally, six: if you're extra paranoid, make sure to keep a little extra cash. I'll admit, statistically, this is not what you should be doing, and more often than not, just investing your money immediately into the markets is going to yield you the best results. But if you want to play it extra safe, keeping more cash on the sidelines is a good way to do that.

For myself, I usually keep between 15 and 20 percent of my net worth in cash just in the event a good investment opportunity comes up. But that just so happened to work out in my favor in March of 2020 when I was sitting on a lot of cash because I could not find the right rental property to buy. So when that happened, it was a bit of random luck that I used that money to buy back into the stock market when it was near its low.

I gotta say, that was pure coincidence, and that was entirely unplanned. But keeping more cash on the sidelines definitely led me to feeling a lot less stressed and more comfortable knowing that if anything were to happen, I would be okay.

And finally, finally, honorary number seven: if you need this money in the next three to five years, you should probably not be investing in stocks. A few years in the stock market is not long enough to ensure that you're actually going to be making money. So the shorter your investment time frame is, the less likely you should be investing in stocks or really anything that could lose value in the short term.

Ideally, you should view anything you do in the stock market as a 10 to 20-year time frame, and anything less than that becomes a lot riskier. The reality is, if you do what I just described, you're pretty much guaranteed to make money over a 20-year period, regardless of what the stock market does.

I say this so confidently because in the entire history of the stock market, a 20-year holding period has never once produced a negative result. That literally means you could buy in at the absolute top, the day before a market crash, and then not make a single other investment for another 20 years, and you will have still made money.

And when you compare the drops with the gains, you could quickly see that bear markets become a blip on the radar, and over time, they're barely noticeable. Get it? Barely noticeable! Smash the like button!

What many people don't realize is that most likely, you're not just gonna make one single investment one time, and that's it for the rest of eternity. Even though your initial investment might drop in the short term, hopefully, you're buying inconsistently, thereby lowering your average cost. If you see your initial investment drop, and then you decide not to buy in anymore because it could drop even further, you could be missing out on the best-performing days in the market.

And like I mentioned earlier, that's very bad. It's also important to remember that if you're buying stocks, ideally this should be money that you won't need for the next 10 to 20 years. So whatever the price is between then is somewhat irrelevant.

Like, you're not going to freak out at a Black Friday sale when the TV you just bought is on sale at a 50 percent discount over the weekend, right? Well, the same thing also applies to stocks. If you see a 50 percent discount, that's a good opportunity to buy even more.

And lastly, I just want to say this: as catastrophic as a market crash could be, do your best to change your perspective on this because riches are very much made in recessions. The best opportunities are really during a time where no one else is investing, when everyone is afraid the market is going to keep dropping lower, that it's doomed forever, and when market sentiment is at its all-time low.

I'm not saying that you should wait for these things to happen, but don't fear them when they do, and just see that as a good buying opportunity. So really, at the end of the day, another market crash is going to happen; it's inevitable. At some point, will it happen this year, next year, the year after that, in the next 10 years? Who knows?

But when you expect that at some point it will happen, and it's normal, you could better prepare and know exactly what to do so you don't panic and sell everything. That's also my strategy when it comes to investing. I keep enough cash on the sidelines to keep buying in; I keep about a year's worth of expenses saved up at all times, and I will keep buying in regardless of what the market does in the short term.

I don't sell anything unless it's for a tax strategy. And most importantly, I just hold my investments. I hit the like button, and I get my two free stocks down below in the description. So with that said, you guys, thank you so much for watching. I really appreciate it. As always, make sure to destroy the subscribe button and the notification bell.

Also, feel free to add me on Instagram; I post pretty much daily. So if you want to be a part of it, there, feel free to add me there. As in the second channel, The Graham Stefan Show, I post there every single day. I'm not posting here, so if you want to see a brand new video from me every single day, make sure to add yourself to that.

And lastly, if you guys want those two free stocks, use the link down below in the description. WeBull is going to be giving you two free stocks when you deposit $100 on the platform because those stocks can potentially be worth all the way up to $1,600. So if you want free money, use that link down below, and let me know what stocks you get. Thank you so much for watching, and until next time!