As every ASX investor knows (or will inevitably find out), stock market crashes can be terrifying events. It's quite an experience to go through, seeing the value of your share portfolio decline by 20%, 30%, or even 50%. Sometimes it can happen over a year or two. But in others (like the COVID crash of 2020), it can take only a few weeks.
These events can scar investors for life. And so many try to take steps to ensure their stock market portfolios are 'ready' for that next crash.
So how is my portfolio prepped for the upcoming crunch, whenever that may be? After all, in the hundreds of years that stock markets have been around, we've never failed to stop crashes from happening. You could say they are one of life's few certainties, after the infamously unavoidable death and taxes.
How I'm preparing my ASX share portfolio for the next stock market crash
Well, there are certainly a few aspects of my own share portfolio that will come in handy during the next stock market crash. For one, I have some small exposure to gold and gold miners. Gold is often touted as a hedge against falling shares and economic turmoil. We saw the value of gold rise during the aftermath of the global financial crisis, and more recently, during the COVID period.
I also have many dividend-paying shares in my portfolio as well. A company like Washington H. Soul Pattinson and Co Ltd (ASX: SOL) has an impeccable track record of continuing to raise its dividends during the worst economic times, and this is one of the reasons it is a cornerstone of my holdings. Other potential candidates for this purpose include Telstra Group Ltd (ASX: TLS) and Coles Group Ltd (ASX: COL).
Resilient dividends can help boost a portfolio's returns during a proverbial storm and also gives one an invaluable source of cash flow when shares are cheap.
Thirdly, I have also built up a small cash position. Cash doesn't lose value during a stock market crash, of course. And I like legendary investor Warren Buffett's idea that 'when it rains gold, put out a washtub, not a thimble'.
But I am most definitely not Warren Buffett, so this cash position is still a small part of my overall position, seeing as I like to stay mostly invested in shares, most of the time.
Buffett: "When forced to choose, I will not trade even a night's sleep for the chance of extra profits"
But the most significant way I am making sure my portfolio is ready for the next stock market crash? It's by owning the best companies that I can, right now. I believe that trying to structure a portfolio around what the market may or may not do in the future is folly. None of us knows when the next crash may come. It could be next week, next year, or in 2028 for all I or anyone else knows.
The best-run businesses tend to survive and thrive during tough times. So I'm happy to own the shares of what I think are the best companies today and trust that they will be just fine during the next crash, no matter what the markets are telling us.
That's why I have names like Soul Patts, Apple, Amazon.com, Berkshire Hathaway, and Visa in my personal portfolio.
Sure, I'd be happy to pick up some more with whatever cash I can spare at the time of the next market prang. But I am certainly not selling everything now, just to sit around and wait for the next storm.
It's my belief that stock market crashes are to be endured rather than acted upon or prepared for. At the end of the day, the share market tends to go up far more often than it goes down. As such, I plan for the ups, and not the downs.
