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.

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.

2022 new year concept image

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.

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 assessed. 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.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »