Best Investments for a Stock Market Crash – Forbes Advisor

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Sooner or later every investor will experience a stock market crash, when the markets collapse quickly and unexpectedly. Let’s take a look at some of the best investment choices you can add to your portfolio right now to help you deal with extreme market conditions.

Treasury bonds

It’s hard to find more stable investments than US Treasury bonds, which are backed by the full confidence and credit of the US government. Investors who fill their portfolios with low-risk investments that can provide a little more return than cash under a mattress have long turned to US Treasury bonds.

With terms of 20 and 30 years, Treasury bonds pay interest every six months until maturity, when the government pays you their face value. Rates fluctuate constantly, but recently Treasury bonds have fallen between 1.375% and 2.375%.

While Treasuries provide stability, there are times when they barely keep pace with inflation, and now is one of those times. Other forms of government guaranteed debt, such as I Bonds or Inflation-Protected Treasury Securities (TIPS) may be better choices during times of low interest rates and high inflation.

You can buy Treasury Bonds, I Bonds, and TIPS directly from the US Treasury on their website,

Corporate Bond Fund

If you’re comfortable with slightly higher risk than government bonds, but still want the security of fixed income, corporate bonds may be the perfect fit.

Corporate bonds work a lot like Treasury bonds, except instead of lending money to Uncle Sam, you give it to private companies. These private companies then turn around and use your investment to fund growth, although they have a slightly more patchy, but still generally good, history of paying you back what you are owed.

Read more: How do bond ratings work?

Most individual investors will have a hard time accessing individual corporate bonds (not that they should even necessarily want to), but anyone can easily buy shares of mutual funds and exchange traded funds (ETFs). holding hundreds of corporate bonds in their normal brokerage accounts.

High quality corporate bonds have historically provided stable and strong returns. For example, the SPDR Portfolio Corporate Bond ETF (SPBO), which tracks the Bloomberg US Corporate Bond Index, has a three-year rolling return of around 8%, offering positive returns even during the Covid-19 pandemic. The returns go down a bit if you extend them over five or 10 years, when they are on average half that.

All of these, however, lag significantly behind the trailing returns of the SPDR S&P 500 ETF Trust (SPY), a fund that tracks the performance of the S&P 500. Over three, five and 10 years, its trailing returns were low. ‘at least 14%.

Money market funds

Money market funds are very low-risk mutual funds that invest in short-dated securities, making them one of the least risky investments available outside of government bonds.

This stability comes at a cost, however: money market funds currently offer microscopic returns. Even the best money market funds have an average return of around 0.01% right now, so you probably won’t want to allocate large percentages of your portfolio to them.

Unless you are forced to keep your money in a brokerage account, you may be better served by a high yield savings account.


Gold is the preferred choice for many investors faced with market volatility. The value of gold generally increases when the overall market is in trouble. Between 2008 and 2011, for example, the price of gold rose more than 100% as the economy went through the Great Recession and embarked on a recovery.

Don’t apply the Midas touch to your entire wallet. As markets return to growth after a crash, investors typically turn to riskier assets again and the value of gold can struggle.

Over the past century, the price of gold has increased by around 9,000%. That’s not a bad performance, until you compare it to the over 60,000% gain in the Dow Jones Industrial Average (DJIA). If you decide to invest in physical gold, you will also need to pay for storage and insurance.

Related: How to invest in gold

Precious Metals Fund

The headaches that come with investing in physical gold, silver, and platinum, like the costs of storage and insurance, are the reason many turn to mutual funds and ETFs. precious metals.

However, you will need to do your due diligence. Some funds track the prices of precious metals while others invest in companies in the mining or refining industries. While the prices of the latter can be highly correlated with the values ​​of precious metals, there may be a wider spread than you would like.

Like physical gold, precious metal funds are not necessarily the best bet for large amounts of your money. While they can offer some stability during times of turbulence, they can also follow the market during bull markets. The five-year rolling return of the iShares Gold Trust Fund was 6.50%, while the rolling return of SPY was 17.51%.

REIT — Real Estate Investment Trust

If you want to invest in real estate but need some degree of liquidity, check out real estate investment trusts (REITs).

Because they invest in real estate, the performance of REITs may be less correlated to the stock market, making them a good hedge against crashes. As an added bonus, they generally pay higher dividends than many other investments.

However, REITs are not without risk; they are always vulnerable to the ups and downs of their respective industries. They just experience different volatility than more traditional equity investments, which helps you diversify.

Dividend stocks

Due to the regular income they offer, dividend-paying stocks are popular with risk-averse individuals and retirees. Companies like the Dividend Aristocrats have a decades-long track record of handling the vicissitudes of the stock market with aplomb, while paying ever-higher dividends.

While higher dividend payouts mean you might not have to rely on your investment to increase value so much to meet your goals, dividend paying stocks are not without risk. Unlike bond interest payments, dividend payments are not guaranteed, and during tough times, companies can reduce or eliminate dividends altogether.

They are also technically always stocks, and their values ​​can move with the wider market, which means that they are just as likely to fall in value during a crash. To minimize the risk of this happening, you can opt for dividend funds instead of individual stocks.

These funds have historically performed well, but can lag behind typical S&P 500 returns, especially if you don’t reinvest your dividends.

Essential sector stocks and funds

Even during a recession, people need stable consumption and access to health care and public services. This means that stocks and funds in this sector may suffer less when the global market does.

If you are looking to diversify your portfolio, but want to conserve equity risk, you may want to consider ETFs like these in key areas:

  • SPDR Fund for Selected Sector for Health Care (XLV): This fund tracks the performance of S&P 500 healthcare companies. The main holdings are Johnson & Johnson (JNJ), UnitedHealth Group (UNH), Pfizer (PFE) and Thermo Fisher Scientific (TMO).
  • First Trust Nasdaq Food & Beverage ETFs (FTXG): FTXG tracks the Nasdaq US Smart Food & Beverage Index, investing in leading food and beverage companies including Bunge (BG), Tyson Foods (TSN), Hershey Company (HSY) and General Mills (GIS).
  • Vanguard Utilities ETFs (VPU): VPU tries to duplicate the performance of a utility stock index. The fund companies include Duke Energy (DUK), Exelon Corporation (EXC), American Water Works (AWK) and NextEra Energy (NEE). As an added bonus, utility stocks also frequently have above-average dividends.

Total Market Index Funds

It may not sound intuitive, but continuing to invest in the stock market during a stock market crash is actually not the worst thing to do. In fact, the average dollar cost depends on maintaining your investments even when the market gets tough.

By continuing to buy stocks when the market is down, you can lower the overall price you pay per share and position yourself for growth when stocks inevitably recover. But remember: this recovery is not instantaneous. It can take months or even years.

Check out our list of the best total market index funds to start investing in the entire U.S. stock market.

Related: How to prepare for a market correction

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