How I plan to survive any 2022 stock market crash

Is there a further stock market crash coming in 2022? I do expect market weakness, and here’s how I intend to deal with it.

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Will we suffer a stock market crash in 2022? Hang on, we’ve just had one. Do they come along like buses, or something?

The FTSE 100 is not far off its valuations before Covid-19 drove markets into a tailspin. Is the economy really that close to its pre-crash outlook? Are companies really as strong as they were before the crisis, and do they deserve optimistic valuations again so soon?

I doubt we seeing a full-blown, 2020-style, stock market crash again in 2022. But I do think we could still be in for a rocky year. And I definitely think a good few companies currently command high valuations that are unsustainable.

So how do I plan to survive a 2022 market downturn? For one thing, I intend to focus on three key investing rules next year. There’s nothing earth-shattering among them. But they should help me focus on minimising the downside, reducing my potential for loss.

In addition, I am already making some key adjustments to my investing strategy. While the stock market crash was painful across the board, some sectors suffered far worse than others. And a lot of the worst casualties shared one key characteristic — they carried high debt.

Hammered balance sheets

Aviation-related companies, such as International Consolidated Airlines and Rolls-Royce, spring to mind as examples. Both companies’ balance sheets took a further hammering during the crisis. And it’s far from clear when their cash flows and liquidity are going to look strong again.

BT Group shares took a hit too. And I’m convinced that company’s chronic debt mountain had a fair bit to do with it. And BT already plans to start ramping up its dividends again — I’m shaking my head as I write these words. In other times, I have come close to buying BT and Rolls-Royce. But not now. No, companies with massive debt are permanently off my radar.

Another way to reduce sector risk is to diversify. And that gives me a chance to think positively about what I will buy in 2022, rather than what I won’t buy. Over the years, I’ve been poor at diversifying, rarely holding more than five or six stocks at any one time.

Stock market crash diversification

So in 2022, I intend to expand that diversification. And as part of that strategy, I’m looking more and more at investment trusts. I have already bought some City of London Investment Trust shares. And that, with just a single investment, gave me instant diversification across Diageo, Unilever, AstraZeneca, and a whole range of other stocks.

Oh, and the trust has lifted its dividend every year for 55 years in a row. It’s currently yielding around 5%. That must be a good approach to stock market crash survival, mustn’t it?

That brings me to another change in focus. And that is to concentrate almost 100% on investing in cash-rich dividend stocks, which I see as the most resilient. I have increasingly looked towards dividends as I’ve been getting older, but I’ve still mixed things up with growth stocks too.

But that’s it, no more growth punts for me now. Well, hardly any. At least, I’m not selling my Boohoo shares.

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 considered so you should consider taking independent financial advice.

Alan Oscroft owns shares of City of London Inv Trust and boohoo group. The Motley Fool UK has recommended Diageo, Unilever, and boohoo group. 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.

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