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Protect Your TFSA: A Market Crash Could Wipe Out 50% of it

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2021 is just a few days ahead, and the anticipation of a new year is building. People are both hopeful and a bit scared of what the new year might have in store for us. People are hopeful, because with the arrival of a vaccine, the virus that plagued 2020 will probably be contained, and control and will finally be behind us. People are scared about the financial fallout of the pandemic finally hitting us.

The market has almost recovered to its pre-pandemic value, which is not exactly reflective of the underlying economy. This and several other factors are putting many investors and speculators on edge, because they all point towards the same potential eventuality: a market crash. It’s too soon to tell which 2021 quarter will see the market crash, but the probability of it happening is getting stronger by the day.

The timing of a crash might not be that big of a problem compared to the impact of it. If you have a TFSA portfolio full of risky and volatile stocks, it might lose half its value when the market crashes. A better way to prepare your portfolio for an impending crash is to anchor it with safe and dependable stocks like Fortis (TSX:FTS)(NYSE:FTS) and Empire Company (TSX:EMP.A).

A utility giant

Fortis is a North American regulated utility giant, with over 3.3 million gas and electricity consumers in 10 countries, primarily in the U.S. and Canada. 99% of the company’s revenue is generated via regulated assets, and it has been growing its dividends for the past 46 years. Its prestigious payout history, strong balance sheet, a fundamental strength, and the nature of its business all make it a dependable and reliable stock, capable of weathering a market crash.

The stock fell about 27% in the March crash, and it barely took the company three weeks to return to its start of the year valuation, and it has stayed around that valuation for the past eight months. It’s offering a juicy yield of 3.84%, and it’s planning to increase its payouts by about 6% annually till about 2025.

A food retail conglomerate

Food businesses tend to fare well during economic crises and market crashes, because no matter how bad things go, people still need to eat. And it’s one of the reasons why Empire Company recovered quite swiftly during both the Great Recession and the current market crash. While Empire Company’s dividend streak is not as long as Fortis, the 25 consecutive years of dividend increases still put it among the oldest aristocrats in Canada.

The yield is just 1.44%, but its recovery and modest growth potential make it an adequately safe choice to solidify your portfolio for a market crash. The company owns Sobeys and the related real estate.

Foolish takeaway

It’s not possible to completely crash-proof your portfolio, unless you are willing to get by with minimal growth and keep the bulk of your portfolio in bonds and cash. But if you choose the right stocks, you can be reasonably sure that your portfolio will recover most of its value swiftly after the crash. Both Fortis and Empire Company can help you prepare your portfolio for the impending crash.

Speaking of a market crash...

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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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends FORTIS INC.

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