As an investor, you may have enjoyed an excellent decade. While there have been slight ups and downs in the Toronto Stock Exchange, the stock market in Canada seems to be doing pretty well for itself. The market has enjoyed a steady upward climb and recently set a record high.
The fact that the TSX is setting records is fantastic news. A significant part of the economic cycle, however, is an inevitable recession. There are substantial warning signs that show us that all is not well in this seemingly well-oiled machine.
I want to tell you when the market crash will happen. Unfortunately, nobody knows precisely when it will happen. However, a stock market crash is a natural part of its cycle.
It’s been so long since we have experienced a recession that investors might have forgotten how to prepare for a market crash.
I am going to discuss two ways you can prepare yourself for a significant market crash that might happen in 2020.
Increase weighting in bonds
Depending on the investment goals and the timeline you have set for yourself, I think it would be a smart move to increase your exposure to bonds.
Bonds are a fantastic addition to any portfolio when it comes to preparing for a market crash. Bonds tend to go up as stocks start to go down. Increased weighting in bonds can mitigate the impact of a market crash on your bottom line.
An easy way to gain a decent exposure to bonds to reduce the risk in your portfolio is through ETFs. Bank of Montreal offers flexible exposure via ETF offerings that you could consider. You can trade your ETF like a stock, so it is easy to increase your weighting to bonds when the time comes.
Invest in low beta stocks
In the event of a market crash, increasing your weighting in bonds is one method to secure your portfolio. Another way to protect your portfolio and even earn through the crash in your TFSA is by investing in a safe dividend-paying stock like Dollarama Inc (TSX:DOL).
Since Dollarama launched its IPO just over a decade ago, the store has become one of the premier discount retailers in the country. The company has had its shares of ups and downs over the past few years.
As more competitors start to enter the market, the growth for Dollarama has slowed down. Despite a slowdown in growth, Dollarama expects to boost its earnings by 12% in the next half-decade.
Dollarama stocks also have a beta of 0.86 at the time of writing. A beta of less than 1.0 indicates that the stock tends to fluctuate less according to the performance of the overall stock market.
In times of recession, Dollarama’s low beta can prove to help facilitate a relatively stable income for you through its dividends.
Foolish takeaway
The fear of an impending market crash should stir you into action and take measures to protect your family and yourself. Increasing your exposure to bonds and investing in defensive stocks like Dollarama can help you to mitigate the risk to your portfolio in case of a recession.
