The Next Big Crash - Are You Prepared?

[KopiKat]

True that. But can you guarantee all the stocks that you need to sell to raise the money (be it for medical emergencies, fire sale property good buy etc) are above water??

For players who look to stocks as a place to park their idle funds or worse emergency funds, be really careful about this.

This strikes me as lousy portfolio management and this I believe is a problem across all asset classes. If you foresee a high probability of needing the money in the near term, then it shouldn't be in assets that are lliquid/volatile in the first place.

Case in point- many people invested in property were in a similar scenario if they bought that property in '96/'97. Many were underwater until only recently and if they needed to raise money (and I personally know of at least one) during that period, they would have lost money too.

So with respect to Emergency Funds or Expected expenses in the near term- you shouldn't be thinking of stocks in the first place. In fact, it should be all about Capital Preservation.

My approach is a bit different.... I can and do sell stocks even when it's at a loss, when I need the cash, be it for sudden personal expenses or for switching to another stock. I look at my stocks investment as one single unit ie. there'll be profits and there'll be losses for individual stocks. What's important is a Net Profit for the whole portfolio, inclusive of dividends and all prices marked to market.

PS. I don't see stocks as being illiquid. I do avoid stocks with low daily volume, unless it's very under-valued. In such cases, I'm prepared for that portion of money to be "stuck" for longer term.