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The Next Market Crash: How to Protect Your TFSA Portfolio

The next market crash could have the potential to be a real doozy. Ready or not, it’s coming, and it’ll hit your Tax-Free Savings Account (TFSA) portfolio when you least expect it.

Many pundits, market strategists, and talking heads on TV are pointing the finger at COVID-19 as the cause of the next market crash. And while that seems like the most obvious cause at this juncture given that valuations have gotten a bit out of control amid surging infections in various states south of the border, stocks may prove not to be nearly as expensive, as they seem given the unprecedented backing by the U.S. Fed and central banks worldwide.

Heck, if we’re due for a timely arrival of an effective vaccine, stocks could be severely undervalued at this juncture, given the economic stimulus effects.

However, if the Fed keeps quiet in a potential second global resurgence of infections, while government relief payments such as the Canada Revenue Agency’s (CRA’s) Canada Emergency Response Benefit (CERB) come to an end in the background, we could be in for a vicious market correction, as consumer spending and sentiment could tank at the drop of a hat.

As Warren Buffet once said, anything can happen when it comes to markets. So, heed the man’s words of wisdom and be prepared with your TFSA portfolio for whatever Mr. Market throws at you next, whether it be a melt-up or meltdown that sees him pulling the rug from underneath investors once again.

Newmont Gold

Investing in gold stocks like Newmont Gold (TSX:NGT)(NYSE:NEM) with a small portion of your TFSA portfolio can be prudent. Although gold is an overvalued asset given it’s well above its mid-cycle price, it can’t hurt to at least nibble on a low-beta name that stands to hold its own when the stock market crashes again.

Like insurance, you’ll need some when things go sour. But the value you receive from the insurance ultimately depends on the price you’ll pay and the likelihood of the negative scenario you’re looking to insure yourself against. The stock sports a 0.34 five-year beta and is more likely to zig when the markets zag and vice versa unless, of course, we’re due for a near-term cash crunch of a crash.

Today, the price of admission into a world-class gold producer is very high. With gold nearing the $1,800 mark, the company is making a killing, but how much longer can gold remain at these heights? Probably not forever, which is why I’d limit my exposure to the Newmont despite its low costs of production.


Up next, we have a bond proxy-like defensive dividend stock that also happens to be severely undervalued in my books. Emera (TSX:EMA) is a utility that’s made moves to increase the quality and regulation of its assets over the years.

A higher degree of regulation means that fewer surprises are to be expected — and the more resilient a firm’s operating cash flows will be in the face of market-wide volatility.

Not only does Emera sport a low beta (0.22 five-year beta) stock that’s more capable of holding its own should the markets crash again, but it also looks poised for long-term multiple expansion, as its increasing mix of regulated assets, I believe, makes the company worth a heck of a lot more.

The company has held up in the face of the coronavirus crisis and will probably continue to do so, as management continues to do what it can to improve the long-term fundamentals of its business.

If you seek defensive exposure and don’t want to pay up, Emera is a great bet at 1.5 times book, with its compelling 4.6% yield.

If you're looking for opportunities in this uncertain market, I'd encourage you to consider the following

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Fool contributor Joey Frenette has no position in any of the stocks mentioned.

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