Get ready for a FTSE 100 crash

It’s been a nervous time for global stock markets over the past few days, following the collapse of a major US bank. On this side of the pond, the benchmark FTSE 100 The leading stock index has fallen 8% in the past few weeks.

That brings us close to a stock market correction, which is a 10% loss in value over a short period of time. If that were to happen, we might be in stock market crash territory – prices down 20% in a short period of time.

Can it happen – and how should I prepare?

Could the FTSE 100 crash?

I have my doubts about the near-term possibility of a crash in the FTSE 100. The index has risen less than 3% over the past five years. That doesn’t sound like a run-up for a frothy price.

Indeed, the valuations of many UK blue-chip stocks have looked quite attractive. The market is not necessarily overpriced, unless the economic outlook changes dramatically.

However, markets do not always behave rationally. Although I don’t think the FTSE 100 looks overvalued, nervous investors withdrawing money from the market can still lead to a fall.

In order for it to be a complete crash, I think there must be some trigger event, such as a run on European banks or a significant drop in economic forecasts. Such things can happen, they can be unexpected. But right now, I don’t see a clear and immediate trigger for the FTSE 100 crash.

I wish you the best

However, I still prepare for the worst.

After all, there will obviously be another stock market crash at some point in the future. What we don’t know is when that will be. It might happen tomorrow, but it might not happen for decades.

What does it mean to say that I prepare for the worst?

Basically I’m preparing for a FTSE 100 crash, no matter when it comes. What many people misunderstand about crashes is that they are not always a bad thing for investors. In fact, it can be a gift. A stock market crash gives you the opportunity to buy shares in some of the best businesses in the world, at a price lower than the previous cost (and hopefully lower than it will be in the future)!

But that window of opportunity may not last long. That is why I am now getting ready, by updating my ‘shopping list’ of stocks that I would like to have if they become available at a sufficiently attractive price.

Hunting for a bargain

I have used recent price weakness to buy some FTSE 100 shares this year, for example JD Sports and persimmon.

But there are other stocks in the prestigious index that I would like to see if they are available at a lower price, from Diageo for Bunzl.

I don’t know when the FTSE 100 will crash next. But I’m ready now!