Market Crash 2021: Stash Your Cash Out of the Danger Zone

Another market crash is on the horizon. There is a lot you can do to prepare your portfolio to absorb the worst of the crash.

| More on:
Woman has an idea

Image source: Getty Images

Despite a lot of speculation otherwise, 2020 passed without another market crash. But that doesn’t mean that the financial calamity is no longer coming; it’s merely delayed. The impact of stimulus payments and government intervention will wear off eventually, and when that happens, the market will most likely see a brutal correction.

There are a number of things you can do to prepare for a 2021 crash. You can liquidate part of your investment portfolio (recovery stocks mostly) to capitalize on the growth you’ve so far achieved. The increased liquidity will also help you cherry-pick amazing companies when they are trading at a heavily discounted price during the market crash. But that’s a risky approach and might be devastating for your portfolio if a crash doesn’t come.

There is a relatively safer approach you can take.

Rotate your capital

When you are adding aggressive growth to your portfolio, elevating the risk profile is a natural consequence. This is not a problem when the economy is going strong. Still, in a weak economy and especially during market crashes, high-risk stocks can be a death sentence for your portfolio (in extreme cases). If you want to anchor your portfolio down to stay afloat during a crash, consider rotating riskier stocks to relatively safer ones.

It’s important to understand that not all risky growth stocks underperform during a crash. But it’s better to be safe than sorry. One company that you may consider removing from your portfolio (at least until the possibility of a crash or the actual crash is behind us) is Headwater Exploration (TSX:HWX). It’s an oil and gas exploration company based in Calgary, and it’s one of the few consistently growing stocks in the energy sector.

The share price has grown over 400% in the last five years, and most of the growth happened after the 2020 crash. The balance sheet is also quite strong. One major problem with this stock is that the revenues are declining since 2019. The stock is quite overpriced in a sector that is already facing serious problems.

A safer alternative

Metro (TSX:MRU) is a 25-year old Dividend Aristocrat and a supermarket food chain. It’s two main divisions are food and pharmacy. Both are things people need, no matter what the condition of the economy is. Metro is a low-yielding aristocrat, and it’s currently offering dividends at a modest yield of 1.5%. But that doesn’t mean safety is the only thing Metro has to offer.

This growth-oriented food chain can help you add some consistent and relatively dependable growth to your portfolio. Its 10-year compound annual growth rate (CAGR) is 16%, and if the company keeps increasing its local footprint and leverage the growing popularity of e-commerce the right way, it can keep growing at an incredible pace.

Foolish takeaway

When you are preparing your portfolio for a market crash, you might have to give-up some compounded growth. Still, if you run a simple cost-benefit analysis of what you are losing now compared to what you’d lose if a market crash brutalizes your portfolio, you might find it easier.

And if you have some cash at hand, consider buying recovery/growth stocks to make up for any of the losses you sustained during the crash.

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.

More on Dividend Stocks

A stock price graph showing growth over time
Dividend Stocks

2 Safe TSX Stocks to Add to Your TFSA Amid Rising Volatility

Given their stable underlying businesses and healthy growth prospects, I'm bullish on these two low-volatility TSX stocks.

Read more »

A golden egg in a nest
Dividend Stocks

How to Turn $5 Into $50,000 for Retirement

Can you invest in your retirement goals even in this volatile market? The answer is yes, and an investment amount…

Read more »

Glass piggy bank
Dividend Stocks

Compound Interest: 3 Dividend Stocks That Can Make You Rich

If you're looking to maximize the incredible powers of compound interest while investing for the long haul, here are three…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

TFSA Wealth: How Top Dividend Stocks Can Turn $10,000 Into $185,000

Here's how owning top TSX dividend stocks can help you build TFSA retirement wealth.

Read more »

Pixelated acronym REIT made from cubes, mosaic pattern
Dividend Stocks

Passive Income Seekers: Buy These 6%+ Dividend Stocks Before It’s Too Late!

These three dividend stocks all offer passive income above 6.5%! But don't plan on these valuable rates lasting long.

Read more »

money cash dividends
Stocks for Beginners

New Investors: The 2 Best Options to Earn Regular Passive Income

The stock market is heading into a new downturn, allowing investors to buy quality stocks for a bargain. Here are…

Read more »

A worker gives a business presentation.
Dividend Stocks

2 Top TSX Dividend Stocks to Buy in This Uncertain Market

Here's why Manulife (TSX:MFC)(NYSE:MFC) and SmartCentres REIT (TSX:SRU.UN) are two top TSX dividend stocks to consider right now.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

RRSP Wealth: 2 Undervalued TSX Stocks to Buy Now and Own for 25 Years

RRSP investors can now buy top TSX stocks at discounted prices.

Read more »