Trying to guess when the next stock market crash will occur is an impossible task. There is no telling what will cause the market to panic next.
So rather than wasting my time trying to predict the next slump, I focus on looking for the stocks I would like to acquire in a market crash.
I think this strategy meets two aims. It allows me to prepare in advance for something impossible to predict. It also helps me focus on buying my favourite stocks at the right prices.
I believe that if I have a roadmap ready for any downturn, I can avoid becoming distracted by other opportunities along the way. That is the theory anyway. In practice, there is no telling how I will react in a downturn and if the companies I want to buy will become cheap.
Still, as I noted above, there is no harm in preparing. As such, here is the strategy I would use to invest £10k in a stock market crash.
Taking advantage of the opportunity
One of the sectors I would target for my portfolio is the real estate sector. In a stock market crash scenario, shares in real estate investment trusts (REITs) can fall in line with the market, but their underlying property values are less volatile.
For example, in the last market slump, the value of some REIT shares fell more than 50% in a few weeks. In most cases, the values of their underlying property portfolios only recorded modest declines.
Therefore, in a stock market crash, I would acquire a diversified REIT such as British Land. While the company could come under pressure from risk factors such as higher interest rates and falling property prices over the next couple of years, I think its diversification across the industrial, commercial and office property markets is a desirable quality.
The stock also offers a dividend yield of 3.1% at current prices. If the stock falls in value, this yield could rise even further.
Stock market crash wishlist
As well as buying exposure to the property sector, I would also try and snap up shares in a tech champion like Rightmove. This company has a vast competitive advantage. It is one of the most visited websites in the country.
It is unlikely consumers will stop using the platform just because the stock market falls 20% or 40%. Use could drop off a cliff if there is a property market crash. This is probably the most considerable risk facing the business right now.
Thanks to its strong brand and competitive advantage, the stock rarely trades at what I would consider to be an attractive valuation. That could change in a stock market crash. This is why shares in the online property portal are on my watchlist.
As well as these single stocks, I would also acquire an investment trust. Buying a trust in a stock market crash would enable me to quickly invest a large lump sum in a basket of companies. The drawback of this approach is that trusts usually charge management fees, and I will be giving up some control over my money.
Still, I think the diversification benefits outweigh the risks of investing. That is why I would invest £5k of my £10k crash portfolio in the BlackRock Throgmorton Trust.
