Worried about a stock market crash? Five tips for protecting your stocks and shares ISA

Global markets have fallen due to the war in Ukraine. What simple steps can you take to help protect your stocks and shares ISA in a market downturn?

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.

Businessman looking at a red arrow crashing through the floor

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.

Investors had a white-knuckle ride on the global stock markets last week due to the war in Ukraine. The FTSE 100 fell by nearly 6%, dipping below 7,000 for the first time in six months. Investors looking to use this year’s stocks and shares ISA allowance may well be wondering whether to delay their contributions.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments that “Markets hate nasty surprises, and this was both unimaginably horrible and completely unexpected. The market falls so far haven’t been as fast or as dramatic as the pandemic crash, but they’re the worst we’ve seen since then.”

Let’s look at five ISA tips for managing risk in turbulent markets, along with two funds that might offer a relatively safe haven for investors.


Five ISA strategies for investing in volatile times

Sarah Coles reports that “Some investors have been worried into selling up and retreating into cash. Others are holding back from investing this year’s ISA allowance. However, being put off by volatility means missing out on potential long-term growth.”

So, what are her top five investment strategies for stocks and shares ISA investors?

1. Consider your level of diversification

Diversification is an important tool for managing risk in volatile markets. Markets are naturally cyclical, meaning that different sectors and asset classes perform better in some periods than others.

For example, bond prices tend to go up as share prices go down. Data from Trustnet reveals that seven of the top 10 highest-returning sectors in 2018 were bond-related.

Sarah Coles recommends that you don’t “assume your portfolio is diverse: revisit it. Over time, growth in some areas and falls in others can unbalance it, so check you’re comfortable with your holdings”.

2. Invest your ISA allowance in cash for now

There are only four weeks left to use this tax year’s ISA allowance. You could invest your allowance in a stocks and shares ISA, but leave it in cash for the moment. This protects your investment from a stock market crash and allows you to invest the money in funds or shares when the market is more stable.

3. Buy into long-term growth stories

While a stock market crash will pull down the prices of most shares, companies with sound fundamentals tend to recover more quickly.

What type of fundamentals should you look for? Well, a strong market share in a growth market, a history of delivering consistent financial results, good underlying cash generation, low debt and a track record of stable dividend pay-outs.

4. Drip-feed your ISA contributions

During a market downturn, you can benefit from buying your investments at a lower cost if you drip-feed your contributions over a period of time.

There are two main ways to do this:

  • Make regular payments from £25 a month, and add further lump-sum contributions when you have funds available.
  • Spread your contributions evenly throughout the year, by investing up to £1,666 a month. 

5. Use your ISA to supplement pension income

If dividends fall in a market downturn, pensioners may need to use some of the capital in their pension to supplement their income. This may result in them selling investments at depressed prices.

Instead, pensioners could consider drawing the income from their stocks and shares (or cash) ISAs rather than eating into their pension capital. Sarah Coles points out that you can “refill the coffers when better times return.”

Two fund ideas to protect against downside risk

Kate Marshall, lead investment analyst at Hargreaves Lansdown, suggests two funds as good options for delivering modest returns in falling markets.

1. Troy Trojan

This fund’s objective is to increase capital above inflation over the long term but also to shelter it against downturns. It invests in large, established companies, bonds, gold-related investments and cash.

According to Trustnet, it’s delivered a six-month return of 0.8% compared to a -7.1% return for the IA Flexible Investment sector.

2. Pyrford Global Total Return

Kate Marshall describes this fund as a “good option for a more conservative portfolio or a way to bring some stability to a broader investment portfolio.” In addition to global shares, the fund invests in government bonds and cash to provide stability.

As with Troy Trojan, the fund aims not to lose money over a 12-month period and to deliver a return above inflation, with low volatility. It’s made an annual return of between 1.6% and 2.9% in the last four years, based on data from Trustnet.


How to pick your ISA provider

Whatever the state of the market, fees can make a big difference to the value of your ISA.

To save you time and money, our experts have produced a guide to our top-rated stocks and shares ISA providers based on their extensive research of the market.

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.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »