The stock market hasn’t crashed… yet. Don’t wait too long to prepare

With global markets in decline, fears of a stock market crash are growing. But before we get ahead ourselves, what defines a market crash? A minor 10% drop in share prices is typically considered to be just a ‘correction’. Meanwhile, a 20% slide is when we can start thinking in terms of a full‑blown crash.

Both sound scary, but seasoned investors know they’re nothing to fear — just a normal part of long‑term investing.

Crashes have happened before

We have been here many times. During the dot com bubble, the tech‑heavy Nasdaq soared in the late 1990s. Then, after the turn of the millenium, it collapsed by 75%-80% as over‑hyped internet stocks imploded.

Not long after, in 2008, the global financial crisis triggered one of the worst downturns in modern history. Major indices the world over fell more than a third from their peaks as banks failed and credit froze.

Then, in early 2020, markets crashed again as the pandemic spread, with the Dow Jones plunging roughly 36% in just over a month.

What’s happening now?

Today’s pullback is milder — so far — but risks slipping into crash territory. Down by almost 10%, the FTSE 100‘s essentially in a correction but not yet in crash territory. US markets have also slid, with the Dow and other indices selling off as worries about growth, geopolitics and higher energy prices have picked up again.

Commentary from big banks and brokers has been pretty consistent: this is about uncertainty, not a repeat of 2008. According to Reuters, “investors are dialling down their expectations for interest rate cuts as a jump in energy prices rekindle worries about a resurgence in inflation”.

Others warned that the Middle East conflict and rising oil prices have driven a “significant sell‑off” in global equities and raised the risk of an inflation shock.

How UK investors can respond

For ordinary investors, the key is not to panic‑sell. Keeping some cash on the side gives you options if prices fall further, and steadily drip feeding money into the market can smooth out the bumps over time.

Shifting part of a portfolio into more defensive shares can also help. Retailers such as Tesco, consumer staples giant Unilever, and regulated utilities such as National Grid (LSE: NG.) tend to be less sensitive to economic swings than cyclical sectors like banks or miners.

Why National Grid stands out

Since National Grid’s earnings are set by regulators rather than day‑to‑day market prices, they’re relatively predictable, even when markets wobble. Recent results show 36% year on year growth despite a revenue dip, as tighter cost controls and new grid investments boost net margins to almost 17%.

It yields 3.7% and the payout ratio sits near 80.6% – high, but still manageable for a mature utility. Because earnings are largely government‑regulated, it can grow its dividend slowly over time as it invests in new infrastructure and expands its regulated asset base.

Of course, there are risks. The company carries substantial debt after upgrades and expansion projects. The quick ratio (or acid-test ratio) of about 0.9 means its most liquid assets do not fully cover short‑term liabilities, leaving it somewhat exposed if credit conditions tighten.

Final thoughts

For UK investors worried about crashes, pairing a calm, long‑term mindset with some defensive holdings can make volatility easier to live with.

National Grid won’t shoot the lights out, but its regulated earnings, solid profitability and reliable dividend make it a sensible candidate to think about to anchor the steadier, income‑focused part of a diversified ISA.

The post The stock market hasn’t crashed… yet. Don’t wait too long to prepare appeared first on The Motley Fool UK.

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Mark Hartley has positions in National Grid Plc, Tesco Plc, and Unilever. The Motley Fool UK has recommended National Grid Plc, Tesco Plc, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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