As the global geopolitical situation deteriorates, I am preparing for the worst in my portfolio. As of yet, investors have been spared a stock market crash. That does not guarantee one is not around the corner. Investors and the broader market are incredibly skittish at the moment. Anything could spark a market sell-off.
That said, there is no guarantee we will see a stock market crash. It is impossible to tell what the future holds for any asset price or geopolitical situation. Stock markets could continue to fall, or they could suddenly turn around.
With that being the case, I am focusing on investing in high-quality companies that should prosper, no matter what the future holds for the global economy.
Stock market crash protection
There are plenty of these businesses on the London market. Indeed, one such company is the London Stock Exchange. This organisation controls the UK stock market and has a strong position in European financial markets as well. On top of this, it has a growing presence in the international financial data market.
Stock market volatility could actually be good news for this group. It generates revenue from equity trading, and a stock market crash could lead to more trading. Unfortunately, the company is unlikely to escape unscathed.
It could suffer if there is a significant drop in new businesses coming to the market. This IPO business generates a lot of money for the group. The London Stock Exchange’s profits could slump if corporations pull their listing plans. Despite this risk, I would be happy to buy the stock for my portfolio today.
Another investment I would add to my portfolio — to add a layer of protection against a potential stock market crash — is the Capital Gearing Trust. This investment trust seeks to protect and grow investors’ funds by building a portfolio of defensive assets. There is no guarantee it will protect investors from all market downturns, but its diverse portfolio will provide some protection against uncertainty.
Getting defensive
I am also preparing for the worst by moving away from expensive growth stocks. Investors have been willing to pay a premium multiple for growth stocks in the past. This may not continue in the event of a stock market crash.
Investors might pull their money from these growth equities in order to protect their portfolios from further losses. In an uncertain environment, the companies where the market is expecting the most are usually the first to suffer.
And finally, I would acquire utility companies like National Grid. The group owns a defensive monopoly in the UK electricity market. This market is unlikely to see a sudden drop in demand in the event of a stock market crash.
The one major challenge this corporation faces is the regulatory environment. Regulators essentially set how much money it is allowed to earn from customers, which could hold back growth in the long run.
Nevertheless, when combined with the other groups outlined above, I think the National Grid could help insulate my portfolio from a stock market crash.
The post Stock market crash: how I’m preparing for the worst appeared first on The Motley Fool UK.
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Rupert Hargreaves owns Capital Gearing Trust. The Motley Fool UK has no position in any of the shares mentioned. 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.
Motley Fool UK 2022
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