What goes up when the stock market crashes?

Nobody enjoys seeing the stock market crash.

With the exception of those investors who have resorted to short selling, most of us stand to see our portfolios shrink when the bear market plunges.

With a stock market crash and a bear market technically defined as a drop of more than 20%, the S&P / ASX 200 . Index (ASX:XJO) You haven’t reached that rough correction yet during this year’s heavy market sell-off.

From the August 13 peak through June 20, ASX 200 shares fell 15.7%.

Since then, the ASX 200 has enjoyed a strong rebound, up 9%, leaving the benchmark index down 8.1% from last August.

ASX tech stocks fared worse amid a rapid rise in inflation and interest rates. Although they also enjoyed some of the biggest bounces since the June lows.

From mid-November 2021 until mid-June S&P / ASX All Technology Index (ASX: XTX) is down 45%. Despite a significant recovery since then, All Tech is still down 24% since November.

So, with regard to tech stock investors, there was a crash in the stock market.

What goes up when the stock market crashes?

The current turmoil in equities around the world and raising fears of a stock market crash stems largely from unexpectedly rapid inflation and the resulting rise in interest rates from global central banks.

Rising geopolitical tensions and unresolved supply issues from the pandemic haven’t helped either.

So where can ASX investors go during the stock market crash?

First the gold.

The classic safe haven metal saw its value increase in six out of nine stock market crashes between 1976 and 2020, according to GoldSilver.

During the ASX sell-off in 2022, gold didn’t dim the lights.

But the yellow metal wasn’t too bad. On January 1, an ounce of gold was trading at $1,829. The same ounce is currently valued at $1,791, down 2%.

The same cannot be said for most ASX gold stocks, as evidenced by a 17% year-to-date decline in S&P / ASX All Ordinaries Gold Index (ASX: XGD).

One way to invest in physical gold via ASX is through Betashares Gold Bullion ETF (ASX: QAU).

The ETF aims to track the performance of the gold price. Currency hedging is used against exchange rate movements between the US dollar and the Australian dollar.

QAU is down 2% in 2022 compared to the 8% loss recorded by the ASX 200.

Bonds and inflation protection

Another safe haven asset, if held to maturity, is government bonds.

If the stock market crash was driven by inflationary pressures, you may want to consider indexed exchange-traded treasury bonds (eTIBs).

what are these?

According to ASX:

Exchange-traded treasury bonds (eTIBs) provide a convenient and accessible way to invest in indexed treasury bonds. Indexed Treasuries are capital index bonds issued by the Australian Government. The capital value of the investment is adjusted by reference to the movement in the Consumer Price Index (CPI)…

Indexed Treasury bonds are not traded on an exchange and are usually traded in large parcels, which puts them out of reach of many investors. eTIBs have the appeal and convenience of being traded and settled electronically through the Australian Securities Exchange (ASX) in small or large parcels.

In the event of a stock market crash, make sure you are diversified

The ASX 200 has risen over the past few weeks. So perhaps the worst is behind us.

But if we be Given the stock market crash, it pays to have a diversified portfolio.

In times of inflation with rapidly rising interest rates, look for companies with strong balance sheets, which are unlikely to be hurt by large increases in debt repayments.

Companies with a lot of cash flow that can continue to pay dividends tend to be less volatile than growing stocks.

These may continue to decline during a stock market crash. But at least you will get some regular income during the restoration.

And if you have a long-term investment horizon, history shows that well-managed companies operating in developing markets tend to reward their shareholders over time. Even if few, or none, of them are immune to some downside in the medium term during a market crash.

So, if you see that the value of some of your cherished shares is hurting, remember that they are paper losses only unless you sell them during the correction.

Finally, at times like these, it’s more important than ever to keep some powder dry.

Aside from having some cash ready in case of unexpected needs, you can get some thefts.

As my Foolish colleague, Bruce Jackson, wrote, “If the market does indeed test its June 2022 lows, it gives you a chance to snap more bargains.”

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