Everyone is waiting for the next market crash. But rather than worrying about its impact, have you considered how you could use it as an opportunity to build wealth and get ahead?
You work hard. You earn a decent income. You pay your mortgage, cover the household expenses, look after your children and put money aside for the future.
But despite doing everything you're supposed to do, you sometimes feel like you're not making the financial progress you expected.
Between higher mortgage repayments, rising fuel costs, and the general cost of living, it can feel like there's very little left over. You're working hard just to maintain your lifestyle, let alone get ahead and build the future you want for your family.
And yet, you see other people continuing to build wealth, acquire assets and create financial opportunities.
This is where the next market crash becomes an interesting conversation.
For some, a market crash represents fear and uncertainty. For those who are prepared, it can present an opportunity to buy quality assets at lower prices and strengthen their financial position.
When markets fall, will you be in a position to take advantage of these opportunities, or simply focused on keeping your household afloat?
You don't need millions of dollars or years of investing experience. But you do need a strategy to build financial resilience and put yourself in a position to make informed decisions when markets become volatile.
Here are five signs you're prepared for the next market crash, and five areas where you may need to strengthen your financial position:
1. You’re building wealth, not just earning an income
You might earn a good salary, but how much of that income is actually helping you build wealth?
After the mortgage, groceries, childcare, school fees, insurance and everyday expenses, many families find there's very little left over. And when there is, it's often going towards spending it on your lifestyle.
But there's a difference between earning money and building wealth.
Building wealth means gradually accumulating assets that have the potential to grow in value over time. This could include an investment property, shares and superannuation.
The more you can direct towards building assets, rather than funding your lifestyle, the more opportunities you can create for your future.
Think about where you want your family to be in 10 or 20 years. Do you want to be in a position to pay off your mortgage, retire comfortably, help your children financially or have more freedom over how you spend your time?
Those outcomes require more than a good income. They require a strategy for what you do with your income.
And when markets fall, having already built an asset base and created surplus cash flow can put you in a better position to take advantage of opportunities.
2. You can handle the unexpected without financial stress
Imagine markets fall significantly at the same time one person in your household loses their job or your business experiences a slowdown.
Your investment portfolio is worth less, your household income is uncertain, and your mortgage and other expenses still need to be paid.
This is where financial resilience becomes incredibly important.
Market downturns can last longer than many people expect. While every market cycle is different, historical data gives us an idea of the time involved.
A market correction, generally a fall of 10% to 20% from a recent market high, typically takes around 3 to 5 months to reach its lowest point, with markets historically taking approximately another 4 months to recover their previous highs.
A bear market, generally defined as a fall of 20% or more, has historically taken around 9 to 11 months to reach its lowest point. Recovery can take considerably longer, particularly when the downturn is linked to a recession. Some major downturns, including the dot-com crash and the Global Financial Crisis, took 2-7 years for markets to regain their previous highs. Extreme historical events, such as the Great Depression, took more than a decade.
These are historical averages, not predictions of how long the next downturn will last.
But they highlight an important point: you need to be financially prepared for the possibility of an extended period of uncertainty, not just a few difficult weeks.
Having accessible savings, manageable debt and surplus cash flow can give your family breathing room during an extended period of uncertainty. It means you’re less likely to be forced to sell investments at an unfavourable time because you need money to cover your everyday expenses.
It also gives you choices.
Financial resilience isn't just about your investment portfolio. It's about considering your employment, business income, debt commitments and ability to maintain your family's lifestyle if circumstances change.
You don't want to be in a position where one unexpected event can undo years of hard work.
Building an emergency reserve and maintaining financial flexibility are important foundations. They can help protect your family's financial position and potentially leave you with surplus capital to invest when opportunities arise.
3. You can manage your emotions
It's easy to say you're a long-term investor when markets are performing well. It's a very different feeling when you open your investment account and see your portfolio has fallen by $50,000 or $100,000.
You start questioning your decisions. The news is full of negative headlines, friends and family are talking about selling, and suddenly you're wondering whether you should get out before things get worse.
This is where behaviour can have a significant impact on your financial future.
Panic selling can turn a temporary decline in investment value into a realised loss. It can also mean missing out on the recovery when markets eventually improve.
This is why having a strategy before markets fall is so important.
Experience can help, too. The more market cycles you experience, the more familiar you become with the uncertainty and emotions that come with them. You begin to understand that market downturns are part of investing, rather than a reason to automatically abandon your strategy.
That doesn't mean you should ignore market declines. Your investments still need to be appropriate for your circumstances, goals and tolerance for risk.
Having a clear plan and professional support can help you make informed decisions rather than reacting to fear and uncertainty.
4. You have the capital and confidence to take advantage of opportunities
There's a well-known investment principle linked to Warren Buffett: "Be fearful when others are greedy, and greedy when others are fearful."
But how many people can actually put this into practice?
Imagine the market falls 25%. Investment prices are declining, uncertainty is everywhere, and people are worried about what might happen next.
Would you feel confident investing more money, or would you be too worried about losing even more?
The reality is that opportunity requires preparation.
To take advantage of a market downturn, you need available capital, an understanding of what you're investing in and a strategy for when and how you might invest.
This doesn't mean using your emergency savings or money you need for your family's upcoming expenses. It's about having surplus capital that you can invest without compromising your financial security.
You also need to understand that not every investment becomes a good opportunity simply because its price has fallen. Quality, value, and the underlying risks still matter.
And remember, you don't have to predict the bottom of the market. Having a predetermined strategy for investing gradually or deploying available capital when certain opportunities arise can help remove some of the emotion from the decision.
There's also an opportunity cost to consider. If you spend years waiting for a market crash but never put yourself in a position to invest when one happens, what opportunities could you miss?
Having a plan is one thing. Having the financial capacity and confidence to act on it is another.
5. You have a plan for your money and the life you want to live
Ultimately, your financial strategy should be about more than investment returns. It should be aligned with what you want your money to help you achieve and the life you want you and your family to live, both now and in the future.
Perhaps you want to upgrade your family home, travel more, be able to attend your kids' after-school activities, reduce your working hours or retire comfortably. These goals matter, and your financial decisions should support them.
This is particularly important when thinking about taking advantage of opportunities during a market downturn. Investing when markets fall may offer the potential to acquire quality assets at more attractive prices, but it shouldn't come at the expense of your family's present or future.
If putting money into the market means delaying a family holiday, putting off renovating your home, or compromising the lifestyle you want to enjoy, you need to consider whether that trade-off is right for you.
If you're comfortable making those sacrifices because of what you're working towards, that's a decision you can make. But ideally, you want to put yourself in a position where you have money available to take advantage of investment opportunities without it affecting the things that matter to your family.
That comes down to having a strategy that considers your short, medium, and long-term goals, and how your money needs to be structured to support them. Money you need in the next year or two should generally be treated differently from money you're investing for retirement in 20 years.
It also means understanding the relationship between risk and return. Growth investments can offer greater potential returns over the long term, but they can experience significant short-term falls. More defensive investments can provide greater stability, but generally offer lower long-term growth potential.
The aim isn't simply to chase the highest possible return. It's to take an appropriate level of risk, manage that risk in line with your goals and circumstances, and give your investments the opportunity to deliver the returns you need over time.
Your strategy should ultimately help you build wealth while still enjoying your life along the way.
What can you do to start preparing?
You don't need to have everything figured out today. But there are practical steps you can start taking now to put your family in a stronger financial position.
Get Clear on your cash flow
Create a simple spreadsheet that lists your household income against your expenses. Go through your bank statements and transactions to understand exactly where your money is going. Identify expenses you can reduce or eliminate, and work out how much surplus you could realistically create each week or month.
Set a target for your emergency fund
Based on your household expenses, income, and financial goals, work out how much you can build up in accessible savings. Decide how much of your surplus you can allocate towards this each week or month. Keep this money in a separate savings account so it isn't mixed with your everyday spending money.
Automate your finances
Set up automatic transfers on payday so your money is allocated before you have a chance to spend it. Direct portions of your surplus towards debt reduction, emergency savings, investments and specific goals such as a family holiday. Automation helps create consistency and makes progress easier to maintain.
Review your debt and commitments
List your mortgage, personal loans, credit cards and other debts, including their interest rates and repayments. Understand how much of your income is committed to debt and consider whether you can reduce high-interest debt or make additional repayments while maintaining enough accessible savings.
Review your overall financial position with a professional
Make sure your strategy considers more than just your investments. It should account for your household cash flow, debt, savings, superannuation, protection needs, family goals and the future you're working towards. Having an expert in your corner provides a logical approach, as well as the accountability to follow through and execute on your plan.
Don't wait for a market crash to start building wealth
Nobody knows exactly when the next market crash will happen, how severe it will be or how long recovery will take.
But you don't need to predict it to prepare for it.
Building wealth is about creating choices. It's about being able to give your children opportunities, enjoy life without constantly worrying about money and eventually retire when and how you want.
The families who are better positioned to take advantage of market opportunities aren't necessarily those who earn the most. They're the ones who have worked towards building financial resilience, accumulating assets and creating flexibility in their finances.
You don't have to get everything right overnight. But you do need to start thinking differently about what you're doing with your money.
Because the next market crash isn't just about what happens to your investments. It's about whether you've put yourself and your family in a position to take advantage of the opportunities that may come with it.
Want to learn more?
In our Cash Talk podcast episode, multi-award-winning Australian wealth advisers John Cachia and John Koutsouroupas (JK) unpack how to prepare for a market crash, not just financially, but emotionally and behaviourally.
John and JK also discuss past asset performance, the risk and return trade-off, our bucketing strategy we use with clients, and how market volatility and the decisions you make during these periods can impact your lifestyle.
What areas of your finances need attention?
Take our free 2-minute Wealth Scorecard that will help you better understand your financial situation and determine what areas of your finances require attention.
About the Author
Mason Thorn is a Wealth Adviser who has been part of the team since 2022, mentored by John Cachia. He works closely with self-employed families and growing families who want to take control of their finances, grow their wealth, and use it intentionally to support the life they want to create.
Drawing on his passion for sport, Mason brings the discipline and accountability needed to ensure clients’ financial plans become a reality and align with a more purposeful and fulfilling life.
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