5 No-Brainer Moves to Make if You’re Worried About a Stock Market Crash
In early 2025, the stock market feels more unpredictable than ever. Some days it takes a nosedive, while on others it makes miraculous recoveries no one was predicting. With tariffs, discord with historical allies and governmental funding cuts, you’re not alone if you feel confused about how your investments will perform day-to-day. You may even be worried about an oncoming bear market or stock market crash.
The difference between a bear market and a stock market crash isn’t exactly precise. Both are defined as a 20% drop from the stock market’s most recent highs. But a crash typically happens rapidly, whereas a bear market is a prolonged period of decline. In 2025, perhaps more than most years, no one has any idea if we’ll see a stock market crash, enter a bear market, or even see bullish returns.
But we do know the stock market will crash again at some point, even if it’s not this year. Stock market crashes are, unfortunately, normal. From 1929 to 2024, the stock market crashed 21 times. It’s inevitable it will crash again. We just don’t know when.
Now the good news: Historically, the stock market has always recovered over time.
If you put a good plan in place now, your finances should bounce back next time the market crashes again.
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5 Ways to Prepare for a Stock Market Crash
The problem is many people don’t start thinking about how to prepare for a stock market crash until after the market has already spiraled. It’snot exactly helpful to give advice after a bear market has made its presence known.
That means now is the time to take action to mitigate potential damage. In many situations, the best action plan will be to cultivate a mindset that allows you to wait things out even in a moment of panic.
1. Don’t Try to Time Your Way Out
Some people attempt what’s known as market timing, which means they try to cash out their investments before the market crashes. Or they don’t invest when stocks are surging because they think the market is overpriced.
The problem is even the best minds on Wall Street can’t predict the market’s highs and lows. The stock market could stay hot for a long time. If you avoid investing out of fear or because you’re hoping to buy when the market dips, you could miss out on significant gains. And if you cash out after stocks have already fallen, you’ll lose money or seriously diminish your returns.
A better strategy is to practice dollar-cost averaging, which means you invest a set amount at regular intervals. If you invest in a 401(k) or a similar employer-sponsored retirement account, you’re already doing this because you’re investing money from each paycheck. The same goes for if you automatically invest each month in a Roth IRA or traditional IRA. Over time, dollar-cost averaging – combined with a buy-and-hold strategy – tends to produce better returns than trying to time the market.
2. Build Your Emergency Fund
An emergency fund is the best investment you can make if you’re worried about a stock market crash. You need a cash cushion in case you’re hit with a big expense or a job loss right after the market has tanked. Otherwise, you may have to dip into your 401(k) or other investments before they’ve had time to recover. If you’re younger than 59 ½, you could also face early withdrawal penalties.
If you don’t have at least a six-month emergency fund, make building one a high priority. Of course, this is a long-term goal that may take years to achieve. But any safety net you’re able to build is a win.
Try to budget at least 10% of your paycheck for emergency savings. If that’s not doable or you want to speed up your progress, taking on a side hustle to build your reserves is a good strategy.
If you’re approaching retirement or you’ve already retired, it’s especially important to make sure you have ample cash reserves. An ill-timed crash can devastate your retirement plans by forcing you to sell investments before they’ve recovered or claim Social Security too early.
Consider meeting with a fee-based financial adviser if you’re retired or plan to retire in the next five years. They can help you determine how much cash you should have on hand and whether you have the right ratio of stocks vs. bonds.
Though retirees typically want a higher concentration of bonds than someone with a decade or more left until retirement, rebalancing after a decline in the stock market isn’t a wise move. If you’re retired and need to withdraw money — to pay for expenses or due to required minimum distributions (RMDs) — you’ll typically want to sell bond holdings instead of stocks to avoid taking substantial losses. After the stock market recovers, you can rebalance your portfolio.
3. Limit Individual Stocks to 5% of Your Portfolio
Maintaining a diversified portfolio is essential to weathering a stock market crash. If you invest in stocks of individual companies, try to limit any single investment to no more than 5% of your overall portfolio.
Whenever you invest in stocks, you risk losing money when the market goes down. But the risks of investing in individual stocks are greater compared to investing in index funds that move up and down with the overall stock market.
For example, there’s the risk that one industry will be hit especially hard, as occurred with tech stocks during the dot-com crash, and risks specific to a company, like poor management decisions or increased competition. But when you invest in the market as a whole through a strong index fund over a long time horizon, you hedge these risks as historically, the market has always gone up over longer periods of time.
4. Rethink Risky Investments
If you’ve made a lot of money in the past on risky investments like cryptocurrency or penny stocks, think very carefully before investing more. There’s nothing wrong with investing a small amount of money in a high-risk investment, provided that you have adequate savings and you don’t have high-interest debt. But these investments are way more volatile than the overall stock market, so your losses could be especially steep.
5. Decide Now if You Want to Invest More
A stock market crash can be a great opportunity to invest more if you have the stomach for it. Provided that you have a solid emergency fund and you’re investing for retirement, you could set aside extra money to invest when the stock market crashes.
Because it’s natural to panic when stocks nosedive, make a plan now. For example, you could decide that you’ll invest $X extra if the S&P 500 index falls below 3,500. Or if there’s a stock you want to buy, you could decide that you’ll buy it if the price drops below a certain level.
This may seem counterintuitive to what we said about not trying to time the market. To be clear, saving money to invest when stock dips is a strategy you should use only if you’re already dollar-cost averaging by investing for retirement. But if your finances are in good shape and it fits with your risk tolerance, it’s OK to prepare for some bargain hunting next time stocks crash.
What Should You Do When the Market Crashes?
Probably nothing. A stock market crash is panic-inducing, but it’s best not to make major decisions about money from a place of fear. Keep investing in your 401(k) after a crash unless your financial situation has drastically changed. Avoid checking your account daily.
It’s never pleasant to see your net worth nosedive. But if you don’t sell your investments at a loss, you really haven’t lost money. With time and patience, your finances will eventually recover.
Robin Hartill is a certified financial planner and a former senior writer at The Penny Hoarder. Brynne Conroy, creator of Femme Frugality and author of The Feminist Financial Handbook, also contributed to this article.
