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Ask a Fool: If the Market Crashes, Which Stocks Will Get Hurt the Worst?

By Matthew Frankel, CFP® – Updated Oct 26, 2018 at 10:20AM

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While there's no way to know exactly how individual stocks will fare in a market crash or correction, here are some general guidelines.

Q: If the market takes a major dive, which stocks are likely to perform the worst?

To be clear, there's no way to know how any stock would perform in a hypothetical stock market crash -- there are simply too many company-specific variables.

In addition, many market crashes are triggered by a certain industry. For example, the 2008 crash was fueled by the financial sector, and the dot-com bust in 2000 was led by the tech sector. In these cases, financial and tech stocks, respectively, got hit particularly hard.

Having said all of that, there are some general guidelines.

When the market crashes, defensive stocks tend to hold up the best. These are companies that operate businesses that maintain their revenue streams no matter what the economy is doing. Utilities and consumer staples are good examples of defensive industries.

Additionally, stocks with stable and well-established dividends tend to perform better than their non-dividend counterparts during tough markets. Not only do these companies tend to be relatively mature, but when stock prices are falling, yields rise. This can help create a "price floor" for dividend stocks during market crashes.

On the other hand, fast-growing momentum stocks tend to get hit the worst, especially those with little or no profitability that derive most of their value from their ability to grow revenue. In other words, the stocks that perform the best during booming economic times tend to perform the worst when things turn negative.

Finally, keep in mind that these are only general guidelines, so one of the best things you can do to prepare for a market crash is to maintain a well-diversified stock portfolio.

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