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Stock Market Crash

9 Investments That Can Help You Weather a Stock Market Crash

Stock market crashes, when markets rapidly and suddenly take a significant decline, are somewhat an inevitable event. That may be the case, but there are some excellent investment choices you can include in your portfolio to help you survive such challenging situations.

  1. Gold

Gold is a preferred safe-haven option for investors trying to find their way around a volatile market. As the yellow metal tends to climb when the overall market is under pressure.

For example, gold’s value between 2008 and 2011 was up over 100%, as the economy coped with the Great Recession and entered recovery.

Still, avoid investing too much in gold because once the markets bounce back from a crash, investors would usually return to riskier assets which would weigh on the prices of gold. Moreover, if you choose to invest in physical gold, remember that there is a fee for having it stored and insured.

  1. Precious Metals Mutual Funds

You can opt for precious metals funds if you want to avoid paying for storage and insurance costs associated with investing in physical gold, silver, or platinum. You need to do your own research, however.

Similar to physical gold, this type of fund is not exactly an ideal choice to put a considerable amount of investment money on. They can offer some support in turbulent times, but they may also track the market during bullish situations.

Some funds follow prices of precious metals, while others invest in firms in the mining or refining sectors. Their prices can be significantly tied in with the values of precious metals. But there can be a bigger difference than you might expect.

  1. Treasury Bonds

US Treasury bonds can help keep your footing in the markets since they are stable and government-supported. Plus, they are an excellent option for investors looking for low-risk assets that can deliver a slightly higher yield than cash.

Treasury bond buyers receive a fixed-interest payment every six months. While the rates are regularly subject to change, treasury bonds have recently yielded around 1.37% and 2.37%.

However, treasury bonds are currently having a tough time keeping up with inflation. Therefore, government-back debt such as I bonds and Treasury Inflation-Protected Securities (TIPS) could be better options during times of low-interest rates and high inflation.

  1. Corporate Bond Mutual Funds

A corporate bond is similar to a Treasury bond, with the main difference being that you’re lending money to private companies that issued the bond. They are also riskier than government bonds, although they offer fixed-income security.

While the private companies involved tend to have a slightly imperfect reputation when it comes to paying investors back what they owed, their overall record on that matter is good. Furthermore, quality corporate bonds have been proven to generate solid returns.

  1. Money Market Funds

Money market funds are mutual funds that carry extremely low risk, as they invest in assets with short maturity periods. They are also one of the lowest-risk investment choices you can consider beyond government bonds.

That said, the stability provided by money market funds is not without a downside. That shortcoming comes in the form of minimal returns. So far, the top money market funds can yield about 0.01% returns. Therefore, it’s best to only provide small percentages of your portfolio to them.

You’re better off with high-yield savings account if there is no need to keep your money in a brokerage account.

  1. Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts

You can bet on real estate investment trusts (REITs) if you plan to invest in real estate but still want some liquidity.

REITs pay higher dividends when compared to other investments. Their performances have less correlation to the stock market since they invest in real estate. That trait is what makes them an excellent hedge against market crashes.

Note that you’re not completely safe from risk with REITs. They can still be affected by the ups and downs of their respective sectors. REITs only deal with volatility different from traditional stock investments, which helps with diversification.

  1. Stocks and Funds in Essential Sectors

People require consumer stables, health care, and utilities, regardless of whether the market is going through a recession. That means the stocks and funds in essential sectors may be less likely to experience a lack of confidence than the underlying market.

If you want diversification and don’t mind holding on to the risk associated with equities, exchange-traded funds (ETFs) in the essential sectors are another investment option you can try out for yourself.

  1. Dividend Stocks

Dividend-paying stocks are a go-to option for conservative investors and retirees due to their ability to provide regular income.

Companies known as dividend aristocrats have a long history of paying high dividends consistently. They are proven capable of managing stock market changes in a composed manner.

While high dividend payments may lead you to think that you don’t need to depend on your investment to climb as much to meet your goals, dividend stocks are also not risk-free. Compared to bond interest payments, dividend payments are not always sure.

Companies may also decide to cut or divest the dividends entirely when facing a major crisis. As dividend stocks are still technically stocks, their values could depend on the overall market. That means it may also be possible for them to lose value during a crash.

So instead of individual stocks, you can invest in dividend funds to lessen the odds of your investments going through such a situation. Historically, dividend funds have performed well, although their potential returns may not be as high as the S&P 500, especially when you’re not reinvesting your dividends.

  1. Total Market Index Funds

Continuing to participate in the stock market during a market crash may not seem like a wise decision, but it is. Dollar-cost averaging requires that you stay invested, even when the market is weak.

If you keep purchasing shares during a market dip, you may be able to reduce the total price you pay for each share and prepare yourself for growth when stocks turn optimistic again. However, keep in mind that market recovery is a slow process that could take months or years to achieve.

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