The “Rich Dad Poor Dad” author said the stock market is heading for the “biggest crash in world history”. This comes after the Chinese property developer Evergrande defaulted on debts totalling a whopping $300billion (£220billion). He tweeted: “China’s Evergrande Group cannot pay. Will real estate crash spread to UK? Yes.”
Many investors are now fearful after the disheartening warning, especially since some experts argue that a market crash is overdue.
The month of October also has a track record for stock market crashes, like the Wall Street Crash of 1929 and infamous Black Monday of 1987.However, there are ways investors can prepare for the potential crash.
He explained that for those who are worried about a market crash, the first thing to do is “revisit your strategy.”
“At this point in time, it is very popular for people to be holding individual stocks. You’ve got brands like trading 212, Free Trade and eToro which facilitate people being able to do all those types of things.
“Buying shares in a company like Tesla, or Amazon is very attractive clearly because these are some of the big companies in the world however there is quite a lot of risk when you put your money into a small selection of companies.”
Mr Komolafe discussed the importance of not “putting your eggs all in one basket”.
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The fear there is if one was to drop the basket, it is highly likely they will lose all their eggs. He used this as an analogy to the stock markets.
He suggested that if people are invested in individual companies, they might want to “revisit their strategies all together”.
He said: “If you were invested in 500 companies and 100 of them suffer because of a market correction, you still have 400 companies that could do well.
“Some companies could still do well if the market crashes, such as Tesco for example because everyone needs to eat and buy food.
“The idea here is, and this is the one rule of investing – you’re trying to speculate for reward, while also managing your downside risk.
“So, in other words how can you get as many eggs in that basket so if you were to drop, it you don’t lose all of your three eggs.”
Mr Komolafe stressed the importance of mindset. In times like this people need to think about their current situation and be honest.
He urged Britons who are invested in the market to ask themselves “If I lost 50 percent of this, how would it impact me financially?”
If Britons feel as if it would detrimental, or it would hit them hard, then they are potentially taking on too much risk.
Mr Komolafe said: “It would be worthwhile trying to reduce that risk as much as possible.”
Additionally, he explained the history of the stock market and how it “runs on a cycle”.
Historically the markets will go on a run of profits and then it will correct itself and crash to normal levels “so we are way overdue,” he suggested.
Typically, this happens almost every 10 years and last time there was a big crash was in 2007/2008 so many people are arguing the markets are overdue a crash at some point.Internet Explorer Channel Network