Here’s how I’m trying to prevent a stock market crash from ruining my portfolio

Jon Smith explains which shares he’s avoiding and what he’s thinking of buying to try and protect his portfolio from a potential stock market crash.

| More on:

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.

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.

This week hasn’t been a great one for stock markets around the world. On Wednesday (17 July) the Nasdaq index had the worst day since 2022. Here in the UK, the FTSE 100 has fared better, but is still on track to end the week lower than where it started it.

With renewed chatter about a stock market crash, here are the actions I’m taking.

Avoiding sensitive areas

Based on the movements this week, the sectors that have performed the worst have been tech and consumer discretionary.

Tech’s a broad category, but includes the mega-cap companies such as Amazon, as well as the likes of Nvidia that are focused around artificial intelligence (AI). To some extent, it’s unsurprising this area’s falling, as it’s risen so fast, so quick.

Even though we aren’t in a crash right now, some investors are clearly concerned this sector might be in a bit of a bubble.

Consumer discretionary stocks have also struggled. This includes the luxury brands such as Burberry, which is experiencing much weaker demand around the world. It’s true these stocks tend to perform badly when consumers are tightening their financial belts.

So to avoid my overall portfolio performance getting hampered further, I’m staying away from investing in these two areas right now.

Finding pockets of opportunity

If the market does crash, there are a couple of sectors I think will help to support my overall portfolio. One’s consumer staples and the other’s real estate.

I’m considering adding a real estate investment trust (REIT) to my investment pot. For example, Primary Health Properties (LSE:PHP) as the trust’s up 3% over the past year, and has a dividend yield of 7.13%.

The trust owns 514 properties with a portfolio worth £2.8bn of healthcare facilities. It leases and lets out these properties to the NHS as well as private firms. The income it receives can then be partly paid out to shareholders in the form of dividends.

I like the REIT to protect myself as I feel the income’s very sustainable. Tenants such as the NHS are unlikely to go bust and not pay. Further, even if a market crash does temporarily push the share price lower, I’m happy to be patient for a recovery, given the above average dividend yield.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

As a risk, the firm does operate in a niche area. Should there be any major changes to the health service as part of the new government, Primary Health could experience some problems.

Keep calm, carry on

It’s true that any stock market crash would likely cause a lot of short-term panic. Even the correction over the past couple of days has brought some commotion. Yet on top of the above actions, my last one’s simply not to panic sell, or make rash decisions.

History shows that sharp drops often rally in the long term, so I want to maintain this mindset.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon, Burberry Group Plc, Nvidia, and Primary Health Properties Plc. 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 For Beginners

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

How much could an ISA investor make putting £700 a month into growth stocks?

This writer shows how a relatively modest sum of money invested each month into growth stocks can result in a…

Read more »

UK money in a Jar on a background
Investing Articles

3 steps to turn an empty ISA into a potential £45k second income

British investors can leverage the power of an ISA to earn a chunky, long-term second income, entirely tax-free! Zaven Boyrazian…

Read more »

Investing Articles

How to build passive income with dividend stocks: a beginner’s guide

Want to earn passive income through dividend investing? Learn how to build a portfolio of income-generating shares and grow your…

Read more »

Mother and Daughter Blowing Bubbles
Investing For Beginners

25 years on from the dot.com stock market crash, is history repeating itself?

Andrew Mackie recalls the events leading up to the stock market crash of 2000, and postulates lessons for today’s investors.

Read more »

Investing Articles

Hunting for the best shares to buy? Analysts think this stock might be about to double!

This aerospace supplier’s share price might be on the verge of doubling! Is this forecast too good to be true,…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As the US stock market dives, here’s what Warren Buffett’s doing

Warren Buffett appears to have successfully predicted the ongoing US stock market correction, so what’s he doing now to profit…

Read more »

Young woman holding up three fingers
Investing Articles

3 no-brainer UK shares to consider buying with just £100?

These UK shares are the most popular among British investors right now, but are they screaming bargains or risky traps?…

Read more »

Investing Articles

12 months from now, £5,000 invested in a Stocks and Shares ISA could be worth…

Investing £5,000 in a Stocks and Shares ISA today could make an enormous difference to investor wealth over the next…

Read more »