The market crash earlier this year took many investors by surprise. Looking back on it now, it shouldn’t be too shocking to see how the effects of a global pandemic can wreak havoc on a country’s economy.
Investors should be mentally prepared for market crashes, as they are ultimately inevitable to occur over the long term. But when the entire market drops close to 35% in just over one month, with many individual companies falling much more than it, it can be difficult to make rational investment decisions.
Fortunately, the market has sprung right back up and is now trading down about 5% on the year. It’s pretty incredible to see the S&P/TSX Composite Index run more than 40% in just over four months and still down on the year.
Time to review your portfolio
The COVID-19 market crash was an excellent opportunity to not only review how your portfolio reacts in a steep market crash but how you react mentally as well.
Following the market crash earlier this year, investors should now be able to determine how much risk are they actually willing to endure. Was the drop too steep to make you lose your nerve and sell everything? If so, what could you have changed to react differently to remain calm, cool, and collected, even though markets across the globe were dropping mercilessly?
Diversification between stocks you own is a powerful tool to help minimize risk during a recession. If your portfolio today is heavily weighted towards technology stocks, you may actually be up this year. But not all industries have fared as well as tech this year.
If you are heavily weighted towards tech stocks (I admit I slightly am), now is the time to review your portfolio to determine if you need to add a couple of recession-proof stocks to help endure the next market crash, which might not be as kind to tech stocks.
The Canadian utility company Fortis (TSX:FTS)(NYSE:FTS) likely dropped more than investors would have liked during the crash earlier this year. The company held up very well in comparison to many others during the financial crisis over a decade ago. But not even Fortis was immune to the effects of the COVID-19 pandemic.
Even with an uncharacteristic drop earlier this year, I believe Fortis has a place in most Canadians’ investment portfolios. Fortis is one of the largest utility companies in North America. It generates, transmits, and distributes electricity to more than three million customers spread across Canada, the U.S., and the Caribbean.
Fortis benefits greatly from having the majority of its sales being regulated. This means that cash flow and earnings are predictable, leading to less volatility in the stock.
The utility company also offers one of the most reliable dividends investors will find. Fortis owns a very impressive dividend-growth streak of more than 40 years. Perhaps it’s not the highest yield you can find today, but the company offers a very respectable yield of 3.5% at today’s stock price.
Foolish bottom line
The market has rebounded very impressively since the end of March, but there is still plenty of uncertainty in the market’s short-term future.
You may have noticed that your portfolio held up well during this year’s earlier crash. Either way, Fortis is one stock that I’d look to add before we are inevitably faced with another crash.
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Fool contributor Nicholas Dobroruka has no position in any of the stocks mentioned. The Motley Fool recommends FORTIS INC.