9 Smart Ways to Shield Your Stocks From a Market Crash (That Actually Work)

We’ve all been there—watching our hard-earned investments plummet as the stock market takes a nosedive. It’s enough to make your stomach churn, right? Last year, I lost 15% of my portfolio value in just two weeks during a market correction, and honestly, I panicked a bit. But that experience taught me something valuable: preparation is everything.

Market crashes are inevitable. Since 1928, there have been more than 21 bear markets in the S&P 500 alone. While we can’t predict exactly when the next one will hit we can definitely prepare our portfolios to weather the storm.

In this article, I’m gonna share practical strategies that have helped me protect my investments during market downturns. These aren’t just theoretical ideas—they’re battle-tested approaches that real investors use to safeguard their wealth when things get ugly.

What Exactly Is a Market Crash?

Before diving into protection strategies, let’s get clear on what we’re dealing with:

A bear market occurs when major stock indices like the S&P 500 drop by 20% or more from their peak. Typically, bear markets last less than a year, while bull markets (the good times) usually span multiple years.

The good news? Markets have always recovered eventually. The bad news? It can be incredibly painful while you’re in it

1. Diversify Like Your Financial Life Depends on It (Because It Does)

Diversification is probably the single most important way to shield your investments from a severe market crash. It’s the investing equivalent of not putting all your eggs in one basket.

Here’s how I approach diversification:

• Spread across asset classes: Mix stocks, bonds, cash, real estate, and maybe even some precious metals
• Diversify within classes: Within your stock holdings, invest across different sectors and industries
• Geographic diversification: Include international stocks to reduce exposure to just one country’s economy
• Size diversification: Include large, medium, and small companies

Real-world example During the 2020 pandemic crash, my tech stocks tanked, but my gold ETF and Treasury bonds actually increased in value, offsetting some of the damage

2. Run to Safety Before the Stampede

Most professional traders move to cash or cash equivalents when they sense real market turbulence. You should consider the same strategy if you see warning signs of a crash.

Some “safer” investments to consider:

• High-yield savings accounts
• Treasury bills and bonds
• Money market funds
• Certificates of deposit (CDs)

Remember: Getting out quickly gives you the opportunity to get back in when prices are lower. During the 2008 financial crisis, those who moved to cash early and re-entered the market in 2009 ended up way ahead of those who rode it all the way down and back up.

3. Get Some Guaranteed Protection

I’m not saying you should put all your money in super-safe investments (the returns are too low), but having a portion of your portfolio in guaranteed investments provides serious peace of mind when everything else is crashing.

Consider allocating some funds to:

• Treasury securities: Backed by the full faith of the U.S. government
• CDs: Insured by the FDIC up to $250,000
• Fixed or indexed annuities: Can provide better long-term returns than Treasuries
• High-quality corporate bonds: From financially solid blue-chip companies

My approach: I keep about 20% of my portfolio in these types of investments at all times, regardless of market conditions.

4. Hedge Your Bets With Options

If you’re comfortable with more advanced strategies, you can actually profit directly from market downturns. This isn’t for beginners, but it’s worth understanding.

Some hedging strategies include:

• Put options: These increase in value when the underlying security drops
• Inverse ETFs: These funds are designed to move in the opposite direction of a particular index
• Short selling: Selling borrowed shares with the hope of buying them back cheaper later

Warning: These strategies carry their own risks and costs. I personally only allocate a small percentage (less than 5%) of my portfolio to hedging strategies.

5. Don’t React Impulsively—Stick to Your Plan

When markets are in free-fall, your emotions will scream “SELL EVERYTHING!” But making emotional decisions is often the worst thing you can do.

During market downturns:

• Take a deep breath
• Remind yourself that this is temporary
• Tune out daily market noise
• Focus on your long-term goals

I’ve taped a note to my computer that says, “This too shall pass.” Sounds cheesy, but it helps me avoid knee-jerk reactions when things get scary.

6. Keep Investing Regularly

One of the most counterintuitive but effective strategies during a downturn is to continue investing regularly through dollar-cost averaging.

By putting fixed amounts of money into investments at regular intervals, you’ll:

• Buy more shares when prices are lower
• Reduce your average cost per share
• Potentially see greater gains when the market recovers

I have automatic monthly investments set up, and I force myself to continue them even during downturns. It’s psychologically difficult but mathematically sound.

7. Pay Off High-Interest Debts

Sometimes the best defense is to shore up your overall financial position. If you have substantial high-interest debts (like credit card balances), consider liquidating some investments to pay them off before a major crash.

Benefits of this approach:

• Guaranteed “return” equal to the interest rate you’re no longer paying
• Reduced monthly obligations during uncertain times
• More stable personal balance sheet

8. Look for Strategic Opportunities

Market downturns create buying opportunities. When everything is on sale, consider these strategies:

• Focus on defensive stocks (consumer staples, healthcare, utilities)
• Look for companies with strong balance sheets and little debt
• Consider dividend-paying stocks with consistent histories of maintaining or increasing dividends

During the 2020 crash, I added positions in several blue-chip companies that had fallen 30-40% despite having solid fundamentals. Many of them recovered within a year and are now well above their pre-crash levels.

9. Find the Silver Tax Lining

If you couldn’t shield your investments from losses, you can at least make the most of the situation:

• Tax-loss harvesting: Sell losing positions and use the losses to offset gains elsewhere in your portfolio
• Roth conversions: Convert traditional IRAs to Roth IRAs while values are depressed to pay less in taxes
• Rebalancing opportunity: Use the downturn to reset your asset allocation to your target levels

For example, during the last correction, I sold some underwater positions and immediately used the proceeds to buy similar (but not identical) investments. This let me claim the tax loss while maintaining my market exposure.

Keep Perspective During the Storm

No matter how long or deep the downturn, markets have historically bounced back. This doesn’t mean we should be complacent, but it does mean panic is rarely the right response.

Stay in touch with your financial advisor during prolonged downturns. They can talk you through risks and opportunities and suggest ways to respond while staying on track toward your long-term goals.

My Final Thoughts

I’ve been investing for over 15 years and have weathered several serious market downturns. The strategies above have helped me sleep better at night and, more importantly, preserved my capital during rough times.

Remember that no single strategy is perfect. The best approach combines several of these methods based on your personal situation, risk tolerance, and time horizon.

What about you? Have you survived a major market crash? What strategies worked best to protect your investments? Drop a comment below—I’d love to hear your experiences.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Always consult with a qualified financial professional before making significant changes to your investment strategy.

Quick Summary: Market Crash Protection Strategies

Stay safe out there, and remember: market crashes are like storms—they can be violent and scary, but they always pass eventually.

The 3-5-7 rule is a risk management strategy for traders that sets percentage-based limits on risk and exposure.

The “110% rule” most commonly refers to either an investment guideline for asset allocation or a tax requirement for high-income earners. For investments, it’s a rule of thumb to determine stock allocation by subtracting your age from 110 to find the percentage of your portfolio to invest in stocks.