Stock market crash? No problem! Here’s how I’m protecting my portfolio

Rupert Hargreaves explores the investments he has been buying to try and protect his portfolio against a stock market crash.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Woman using laptop and working from home

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There are some signs we could see a stock market crash in the near term. These include increasing volatility in equity markets and a deteriorating outlook for the global economy. 

However, I am not worried about a market crash. I have been investing my portfolio to prepare for all eventualities, hoping that even if the market suddenly lurchers lower, I do not need to worry about the impact on my wealth. 

Stock market crash protection

There are a couple of strategies I am using to protect my portfolio from a market slump. The first strategy includes diversification. I have reduced my exposure to equities and increased my exposure to corporate bonds. 

This strategy has its own risks. The returns from corporate bonds are unlikely to be as high as those from equities in the long run. Still, I think the trade-off is worth making as bonds tend to have more stability in a market sell-off. Indeed, in the past, investors have flocked to bonds in times of uncertainty, pushing up prices. There is no guarantee this trend will repeat itself. 

The other strategy I am using is to invest in high-quality defensive companies. I always own a selection of high-quality defensive stocks in my portfolio, but I have recently increased my exposure. 

The businesses I have been buying include Diageo and Unilever. Tens of millions of consumers use their products every day. Therefore, I believe that while the value of the companies might fall in a market crash, they will still be highly profitable. I will be able to look past the short-term uncertainty and focus on their long-term growth potential.

Investment trusts

I have also been investing in investment trusts. What I like about these firms is the fact that they can borrow money to invest. They can borrow to invest in stocks when they are falling, increasing returns when the market recovers. There are some risks with this strategy, of course. If a corporation borrows too much money, it could struggle to repay it. Creditors may force the company into liquidation as a result. 

I think the potential rewards on offer from investing in these companies far outweigh the risks. That is why I have been buying the Mercantile Investment Trust for my portfolio as a way to invest in a broad cross-section of small and mid-cap UK corporations. The diversification should help me weather any market volatility, with the potential for significant capital gains on the other side. 

By using these three different investment strategies, I believe I can insulate my portfolio from a stock market crash. It will never be possible to eliminate risk entirely from my portfolio, but by diversifying my assets and focusing on high-quality companies, I think I can improve my results. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns shares of Diageo, Unilever and the Mercantile Investment Trust. The Motley Fool UK has recommended Diageo and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

US Stock

Here are the best-performing S&P 500 stocks after the US election result

Jon Smith notes some of the largest gainers from the S&P 500 yesterday and explains how the election result has…

Read more »

Growth Shares

2 UK stocks knocking on the door of promotion to the FTSE 100

Jon Smith points out a couple of UK stocks that he feels could be ready for the big league based…

Read more »

Investing Articles

Rolls-Royce shares just fell 7%. Is it time to buy?

This investor in Rolls-Royce shares takes a look at the FTSE 100 engine maker's trading update to see what caused…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

What’s going on with the Auto Trader share price?

Paul Summers takes a closer look at why the Auto Trader share price has tumbled despite the company posting higher…

Read more »

Investing Articles

Legal & General shares look set to give me a mind-blowing 10.22% yield in 2026!

Harvey Jones is getting a brilliant second income from his Legal & General shares and expects even more to come.…

Read more »

Investing Articles

I’d consider this beaten-down FTSE 100 dividend stock to target a second income of £19,000

Our writer sees an opportunity to earn a substantial second income by investing in this UK insurance giant. Here’s his…

Read more »

Investing Articles

How cheap is the 72p Vodafone share price?

The Vodafone share price looks very cheap having fallen to a 72p price tag. But is it really the bargain…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Up 43% in a year and the IAG share price could keep on rising!

One of the FTSE 100’s highest-flying stocks still looks cheap on an earnings basis. Is this a brilliant buy for…

Read more »