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Ask a Fool: What Are Some Stocks That Could Protect Me From a Market Crash?

By Matthew Frankel, CFP® - Mar 24, 2017 at 11:00AM

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There are some stocks that tend to do better than the market during tough times.

Q: With the stock market at record highs, I'm worried that we could be overdue for a crash. What are some stocks that could help protect my portfolio?

There are several types of stocks that tend to outperform the market during crashes and corrections. One big category is long-established dividend-growth stocks, particularly those that have raised their dividend every year for a long time period. Companies like AT&T, Procter & Gamble, and Johnson & Johnson immediately come to mind. These stocks have increased their dividends by 32, 60, and 54 consecutive years, respectively, and all three handily beat the S&P 500 in 2008, the last time the market crashed.

In addition, consider companies that sell non-discretionary items at the cheapest prices. Dollar stores, such as Dollar Tree, are an excellent example of this, as they sell products that people need (as opposed to things they want) at lower prices than their competitors. Many businesses like this actually do better in tough economies, as they benefit from consumers who become more value-conscious. In fact, while the S&P 500 lost nearly 38% in 2008, Dollar Tree actually gained 65% for the year.

As many successful investors know, it's more important to outperform during the tough times than it is to capture the market's performance in years when everything is going up. And while there's no way to accurately predict when the next market correction or crash will come, stocks like these can help you get through it in good shape.

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