11 Tips on How to Hedge Against a Market Crash in 2024 & Beyond

The USA experienced an 11-year bull market (the continuous rise in stock prices) from 2009 to 2020 - the longest bull market in history. Meanwhile, the Federal Reserve has been raising the interest rate with more hikes expected.

There are lots of signs, including these, indicating we might be heading toward a stock market crash.

Now, as an investor, you need to look for ideas on how to hedge against market crash.

Fortunately, this guide covers everything you need. You’ll discover how portfolio hedging works and the 11 tips for hedging against a market crash, including investing in collectibles like fine wine.

What Is Portfolio Hedging and How Does It Work?

Portfolio hedging is a strategy that helps you mitigate any possible threats to your investments. 

It usually involves investing in assets that can hedge against a market crash, inflation, interest rate hikes, and stock market volatility. Sometimes, it involves short selling or removing some assets from your portfolio.

In essence, a portfolio hedging strategy mainly protects you from stock market risk and ensures that you get the best investment returns.

11 Tips on How to Hedge Against Market Crash

Here’s how you can build a profitable investment portfolio before a market crash.

1. Invest in Collectibles Like Fine Wine

A collectible such as fine wine or precious metal can help hedge against a stock market crash, rising inflation, or any other market downturn. 

However, bear in mind that an asset class like fine wine is usually less volatile than most collectibles. So, it carries less risk and usually yields higher returns.

For example, fine wine delivered around 26% returns on investment during the Great Recession in 2008, while stocks fell by 52%.

So, how do you start a profitable wine investment journey?

Visit the Vinovest website! It’s an AI-powered platform that helps you easily buy, store, and sell the world’s finest, investment-grade wines. 

2. Invest in Hard Assets Like Real Estate

Investing in hard assets such as real estate tends to be a safe haven for most investors.

That’s because real estate has a low correlation to the stock market. So, it has low risk and usually performs well during a market crash, recession, or a rising inflation period.

However, investing in real estate can be quite costly and complicated. 

But, when buying property, you need to do thorough research, find a solicitor, and then apply for a mortgage. And when it’s time to sell the property, you’ll have to find an agent and ensure the property is well maintained. 

3. Invest in Gold

Most investors put their money on gold during a market crash, high inflation, or any other economic crisis. This precious metal usually outperforms other assets and brings the best stock returns.

Besides, gold prices have been stable throughout the years despite economic crises.

For example, gold price rose substantially during high inflation periods in the 1970s and the 2000s. In fact, gold’s stock price rose by a whopping 9,000% over the last century.

However, gold might not give you consistent returns. For example, it has delivered returns as low as -27.3% to as impressive as 31.9% between 2004 to 2021. 

4. Invest in Fixed Income Products Like Treasury Bonds

Fixed income products like Treasury bonds are also a safe haven for most investors.

These assets carry less risk during rising inflation periods or when there’s a stock market crash. You can also rely on them when the Federal Reserve Bank adjusts interest rates.

The best way to invest in these assets is to raise cash from mutual funds and then transfer it to a Treasury bond during a market downturn. An example of a Treasury bond that usually yields the best returns is the Vanguard Intermediate Corporate Bond Index Funds.

5. Invest in Market-Hedged Products

Investors who want to overcome a stock market crash can also put their money into market-hedged products like inverse ETFs (inverse exchange-traded funds.)

The best inverse ETFs, such as the AdvisorShares Ranger Equity Bear ETF (NYSEARCA: HDGE), are designed to benefit from a stock market crash or any crisis.

6. Diversify Your Investment Portfolio

Investing in individual stocks might usually be risky during a stock market crash. That’s because most stocks are volatile, and they tend to lose value during a bear market or other crises.

Now, diversifying your portfolio can reduce its overall volatility. Instead of focusing on individual stocks, you can also start investing in fine wine, a hedge fund, value stocks, and more.

7. Time the Market

You can avoid a stock market crash by timing the market and adjusting your portfolio when signs of a crash emerge. 

Most investors time the stock market by reacting to news reports. However, the best way to do this is to have a market-timing component written into your investing plan.

8. Buy VIX Call Options

A VIX call option measures stock market volatility and protects your portfolio against a sudden market decline. You can find some of the best VIX call options on the Chicago Board Options Exchange (CBOE.)

9. Sell Call Options

Wealth management advisors usually recommend selling a call option to avoid a market crash. 

Selling a call option means selling a security whose stock price is expected to fall. That way, the buyer might purchase the security at a higher price than what you’d get in the trading market.

10. Buy Put Options

Some investors buy put options to navigate a market crash. A put option is a contract that lets you sell a security at a predetermined price (strike price) within a certain time frame.

When you buy a put option for a certain stock, you’re expecting that stock to drop in value within a certain period. 

If the stock drops in value before the time expires, you can sell the put option to the original seller at a higher price. However, the put option loses its value if the price of the underlying stock increases.

11. Find a Financial Advisor

Finding a financial advisor might also be an excellent hedging strategy.

A financial advisor could help you build a portfolio that’s resistant to bear market problems, a Great Recession, and any other economic downturns.

In most cases, they’ll recommend the best investments that could bring you the best stock returns. They’d usually advise you to diversify your portfolio by adding mutual funds and other profitable assets.

Hedge Against a Market Crash By Investing in the Most Reliable Assets

Financial markets are unpredictable, and it’s often hard to predict when a stock market crash will occur. To avoid stock market risk and uncertainty, it’s usually worth diversifying your portfolio by adding a hedge fund, value stocks, and other assets.

However, most stocks are volatile and carry a lot of risk during a market crash or recession. Meanwhile, an asset class like fine wine tends to be more profitable and offers the best returns.

So, visit the Vinovest website today to start investing in the world's finest wines. This AI-driven platform helps you easily buy, store, and sell wine bottles from all corners of the world.