Retirement Planning: How to Protect Your Portfolio From a Market Crash

Bombardier, Inc. (TSX:BBD.B) is a perfect example of a stock that you shouldn’t put in your portfolio if you’re planning for retirement.

| More on:
Path to retirement

Image source: Getty Images

If you’re investing over the long term, you’ll see both bull and bear markets. Prices will never go in one direction for a long period, and investors should be prepared for a bear market that could put a big dent in your portfolio. However, there are steps you can take to protect your portfolio and your retirement savings.

Don’t invest in speculative stocks

Choosing which stocks you put in your portfolio is an important decision. What’s a hot stock today may not be so hot years, months, or even just weeks from now, which is why value investing is always the safest long-term approach to take. A bank stock, for example, is a safe and reliable way to not only generate decent returns, but also benefit from dividend income.

In contrast, a stock like Bombardier, Inc. (TSX:BBD.B) that constantly finds itself in the press for all the wrong reasons — and that’s selling off businesses — is definitely not a suitable stock to put in your portfolio, especially not over the long term.

There’s just too much risk there. Bombardier has lost 80% of its value over the past five years. It’s struggled to stay out of the red and there’s been no growth in recent years.

Bombardier’s a good example of a business that’s in trouble and facing many questions about its future. Long-term investors should stay far away. Although it’s trading at a low price, that doesn’t make it a good buy.

Bombardier’s problems with quality and a poor reputation are signs that there are problems with its underlying business. For speculators who rely on price movement, the stock may be an attractive buy. But for long-term investors, Bombardier is nothing but a gamble.

Sell stocks within a few years of your retirement

Another thing investors can do when they’re getting close to retiring is to start getting rid of stocks. When the financial crisis hit over a decade ago, it took over a year for the TSX to recover. To minimize your risk, especially when you’re close to retirement, you may be better off rebalancing your portfolio.

When you’re only a few years until retirement, sell shares and putting money into cash and bonds will help minimize your portfolio’s risk. As the downturn related to the coronavirus has shown us, a bear market can happen quickly and without warning.

The only way to prepare is to ensure that you give your portfolio enough time to recover. It may well take a year or two for the markets to fully recover from the damage the coronavirus has caused, perhaps longer.

But by divesting of stocks before you retire while they’re doing well, you can put your mind at ease and not worry about a possible market crash.

Although stocks are down today, they won’t stay that way over the long term and they’re likely to recover, just like they always have. But it’s going to take time for that to happen.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned.

More on Investing

Canadian Dollars
Stock Market

Where to Invest $5,000 in April 2024

Do you have some extra cash to spare? Here are five companies to invest $5,000 in next month.

Read more »

Plane on runway, aircraft
Stocks for Beginners

Up 53% From its 52-Week Low, Is Cargojet Stock Still a Buy?

Cargojet (TSX:CJT) stock is up a whopping 53%, nearing closer to 52-week highs from 52-week lows, so what's next for…

Read more »

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »