15 Ways to Safeguard Your Portfolio From Another Market Crash

The possibility of another market crash is at the top of many investors’ minds right now. There’s no way to predict exactly when another crash or correction might occur, but indications that another market storm is on the horizon are slowly but surely building.

Whether that downturn happens days, weeks, or even months from now, it’s important to ensure that your portfolio is prepared to handle whatever headwinds the market throws its way and that it remains on track for long-term success and growth.

Here are 15 ways to accomplish this goal.

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It’s no secret that the most effective investment strategy is a long-term investment strategy. When you focus on building a collection of high-quality stocks that you hold in your portfolio for years at a time, you’re less likely to make rash investment decisions and it’s easier to put any short-term market headwinds in perspective.

A few weeks or months of tough market days shouldn’t alter your long-term investment mindset, and these volatile periods often present ripe opportunities to buy premium stocks at bargain prices.

If you don’t have a clear investment strategy, now is the time to formulate one. Assess the long-term goals that you have for your portfolio. Do you prefer the approach of growth investing, or is value investing more your speed? What’s the ratio of high-risk to low-risk investments you’re willing to hold in your portfolio at any given time? Are your investments properly diversified? A long-term investing strategy that focuses on a strategic pattern of diversification is often the most successful impetus to building sustainable wealth through the stock market.

ALSO READ: This 1 Investment Strategy Could Easily Make You a Millionaire

Before you go pumping more money into your portfolio in anticipation of a market crash, take a look at your current savings. Are you comfortable with the nest egg you have, or is it lacking? Ideally, you should have about six months' worth of living expenses saved up for a rainy day.

Having a robust nest egg isn’t just essential to help you safeguard your financial future -- it can also be key to the long-term survival of your investments amid market headwinds. For instance, if you don’t have one and another market crash and recession hit, you might be forced to dip into your portfolio to generate spare cash. If this happens, not only are you likely to sell at a loss but also your portfolio could suffer serious, long-term damage.

A robust savings fund also gives you the flexibility to invest with confidence during times of market volatility and take advantage of high-quality stock buys on sale.

Certain sectors tend to perform better during periods of both market highs and lows than others, and the healthcare industry is definitely one of them. High-caliber healthcare stocks with products and services that are in demand regardless of what the market is doing -- or in the case of the pandemic, experience elevated demand -- can offer essential stability, growth, and value to your portfolio.

Another sector of stocks to consider adding to your portfolio to stabilize it for the next bout of market headwinds are companies that sell consumer staples. These are companies that provide the essential products people require on a year-round basis, from household products to cleaning supplies to food staples.

Most top consumer staples stocks aren’t going to generate lightning-fast portfolio growth, but many of these companies pay generous dividends and can contribute considerable long-term value to your basket of holdings.

ALSO READ: 3 Top Consumer Staples Stocks to Buy Now

Another way to get your portfolio up to snuff for the next market crash is to increase your holdings in reliable dividend stocks. They can contribute meaningful growth and value to your portfolio while increasing your total returns and boosting your available cash flow over the long run. Stocks with a particularly illustrious history of increasing their dividends over time may be inducted into the elite clubs of Dividend Aristocrats or Dividend Kings.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Many of the most successful long-term investors choose an approach that combines the tenets of growth, value, and dividend investing. This well-rounded investment outlook helps you to ensure that your portfolio is properly balanced and will continue generating returns even in murky market times.

One of the fastest ways to leave your portfolio vulnerable to market headwinds is to allow panic to affect your investing choices. It’s easy to feel worried when market madness hits, but a panic-driven mindset can lead you to make ill-advised investment decisions that will bring long-term harm to your portfolio.

Stay calm, train your focus on the long term, and remember that market downturns are an inevitable and historically short-lived part of a cyclical market. A period of consistent market decline will eventually end and will often be followed by a robust period of growth.

And if you’re concerned that your emotions are still too high to invest, wait out the volatility and buy more stocks down the line once things have leveled out.

ALSO READ: Worried About a Stock Market Crash? 4 Ways to Be Ready

Your particular investment strategy is a highly personal choice, and one you may find needs tweaking here and there as the years go by. For example, you might be comfortable keeping a higher level of risky stocks in your portfolio right now, but as you edge closer to retirement, your comfort level with these types of investments might change.

If you are concerned about the vulnerability of your current investments should another market crash or correction occur, now is the perfect time to evaluate the level of risk present in your portfolio and where modifications need to be made. This may mean that you decide to sell off some of your existing holdings, or that you opt to invest in more conservative, safe stocks to balance out the current risk levels in your portfolio.

If your savings fund is ready to go and you have the money to spare, the periods of volatility that often foreshadow and accompany market crashes or corrections can be opportune buying windows for the shrewd long-term investor.

That’s not to say you should rush to scoop up a bunch of random stocks just because they are suddenly trading at a discount. Keep implementing your long-term investment strategy and personal investing thesis when you make buying decisions during volatile market times, and only invest in stocks that you’re willing to hold onto for the long haul.

One of the easiest ways to undermine the stability of your portfolio when the market is down is to panic and sell off some of your stocks. When the market is down and you sell existing holdings, you’re almost certain to sell at a loss. Even if your long-term thesis about a particular stock has changed, unless you absolutely need the cash right then and there, it’s usually best to wait until the market has corrected before you sell.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Portfolio diversification is one of the most effective ways to support consistent, long-term returns. This strategy can also help you to better protect your basket of investments when the market is down because you won’t be overly dependent on any particular stock or stock sector to drive your portfolio growth.

When you diversify your holdings with stocks that not only represent an array of sectors but also provide a variety of catalysts such as growth, value, and dividends, this allows you to ensure a certain level of stability in your portfolio in all types of market situations.

Portions of your portfolio might trend downward in the short term in the event of a crash or correction, but a well-rounded collection of investments that represent diverse industries and with varying characteristics can help to stabilize these more vulnerable areas and keep your portfolio buoyant through the market storm.

ALSO READ: 3 Ways to Diversify Your Investments When Money Is Tight

From meme stocks to non-fungible tokens (NFTs), the latest and greatest investing fads keep making all the press, and it can be tempting for investors to join in on the hype. The trouble is, once the hype has died down around the latest cryptocurrency or Reddit stock, the investment often inevitably hurtles toward rock bottom, and shareholders can easily be left holding the bag.

That’s not to say that speculative investments can’t have a place in your portfolio, but they shouldn’t take up a huge chunk of your holdings, either. Many investment fads are as short-lived as they are risky, and it’s wise to take any market hype with a grain of salt before buying in.

In most cases, it’s best to avoid these fads altogether and stick to more stable investments that have a higher likelihood of producing long-term, consistent returns.

Just as you shouldn’t let panic, fear, or even greed drive you to sell when the market is down, you shouldn’t let these feelings motivate you to buy stocks, either. Basing your investment choices on a short-lived emotional reaction is undoubtedly one of the simplest ways to wreak havoc on your portfolio and make illogical investment choices that could impact its stability for the long run.

If you’re struggling to keep emotions out of the picture, take your time before you invest in new companies or simply wait until the cobwebs have cleared a bit. And invest only in companies that you’re willing to hold onto for three to five years at least.

Whether because your nest egg is lacking, emotions are high, or another reason, sometimes the best thing you can do to protect your portfolio when the market is down is absolutely nothing.

There’s no rule book that says you have to invest when the market dips. If you’re more comfortable sitting tight or have another reason to hold off investing (such as low cash flow), simply wait and don’t make any changes to your portfolio until things have leveled out.

ALSO READ: The Next Stock Market Crash Is Looming: Here's What to Do About It

Every investor makes mistakes and missteps during their journey to wealth building through the stock market. This is totally normal. There’s no such thing as a perfect investment portfolio, and there’s no such thing as a perfect investor. And the fact is that even the most robust of portfolios might see a near-term decline when the market crashes or corrects.

That being said, if you were unsatisfied with your portfolio’s performance in the last market crash, assess where you can shore up any vulnerabilities in your holdings and whether it’s a good time to rebalance your basket of stocks.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Few investors welcome the warning signs of another market downturn. The truth is that cyclical changes are a normal part of the way the market functions. Periods of prolonged market highs are often followed by stretches of lows, and vice versa.

By focusing on high-quality stocks that represent broader swaths of the market rather than narrowing your portfolio down to just a few companies or sectors, you can ensure you’re better positioned for whatever the market brings next.

And when you’re investing for the long term, a few weeks or months of volatility shouldn’t cause you to lose sleep.

To close with some wise words from famed billionaire investor Warren Buffett, “Someone's sitting in the shade today because someone planted a tree a long time ago.”

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