Best hedges against market crashes?

[RMA]

Which asset you wished you were holding duing 2020 market crash and would like to hold again to protect against or take advantage of future crashes?

[adamu]

Time: The market goes up in the long run.

[RetireJapan]

I *like* market crashes. Kind of hoping for a big, drawn out one soon so I can cram more money into the accounts before running out of paychecks

[RMA]

I *like* market crashes. Kind of hoping for a big, drawn out one soon so I can cram more money into the accounts before running out of paychecks

Or you could use a hedge which can help you take the advantage of market crashes. What could it be

[Kanto]

I *like* market crashes. Kind of hoping for a big, drawn out one soon so I can cram more money into the accounts before running out of paychecks

Or you could use a hedge which can help you take the advantage of market crashes. What could it be

A large 1 year + emergency fund is a pretty good hedge.

Insurance against job loss and market downturns.

Time is only a hedge if you have complete 100% security in your employment, or that of your spouses. And no emergencies that require a large amount of income. (Medical issues, family issues etc).

[Teflon]

Which asset you wished you were holding duing 2020 market crash and would like to hold again to protect against or take advantage of future crashes?

I voted for bonds just because of my specific situation during the 2020 market crash which was really related to my ignorance of the defined contribution plan my company setup for me when I started. Basically I never logged into my account to look at it until the market crash on March 23rd 2020. When I viewed my DC account I discovered that the default is 100% jbond allocation but you can elect to change to something riskier.

After thinking about it for a day or two I decided to put it into an index fund that tracks world markets. The bonds were liquidated and converted to 100% shares of that index fund over the next couple of days just as the market was beginning to recover. Since then my return has been about 48.2%. That was just dumb luck due to my own ignorance. That is unlikely to happen again as I'm not currently holding bonds (as far as I know).

[RMA]

Which asset you wished you were holding duing 2020 market crash and would like to hold again to protect against or take advantage of future crashes?

I voted for bonds just because of my specific situation during the 2020 market crash which was really related to my ignorance of the defined contribution plan my company setup for me when I started. Basically I never logged into my account to look at it until the market crash on March 23rd 2020. When I viewed my DC account I discovered that the default is 100% jbond allocation but you can elect to change to something riskier.

After thinking about it for a day or two I decided to put it into an index fund that tracks world markets. The bonds were liquidated and converted to 100% shares of that index fund over the next couple of days just as the market was beginning to recover. Since then my return has been about 48.2%. That was just dumb luck due to my own ignorance. That is unlikely to happen again as I'm not currently holding bonds (as far as I know).

Good experience! That's why experts suggest to keep bonds in your portfolio for the rainy days. However now since inflation is higher than interest and markets most of the time remain up so whether it still makes sense to hold bonds? I voted for gold because I believe it will preserve it's value for inflation and I expect it to do good when equity markets crash.

[RetireJapan]

I *like* market crashes. Kind of hoping for a big, drawn out one soon so I can cram more money into the accounts before running out of paychecks

Or you could use a hedge which can help you take the advantage of market crashes. What could it be

I don't need a hedge at the moment because I don't see temporary price movements as any kind of problem. Market crashes only matter if you need to sell before the market recovers (and by extension if the market never recovers). I believe any kind of hedge is just going to reduce my long-term returns.

This is speaking as someone who is planning to continue investing for the next 2-3 decades.

[RMA]

I don't need a hedge at the moment because I don't see temporary price movements as any kind of problem. Market crashes only matter if you need to sell before the market recovers (and by extension if the market never recovers). I believe any kind of hedge is just going to reduce my long-term returns.

This is speaking as someone who is planning to continue investing for the next 2-3 decades.

So basically you're 100% in equities? It makes sense if you know that you will not be forced to sell during market downturns but since markets appear overheated right now, I feel I should have some kind of hedge to take advantage of next crash which may occur sooner than later.

[adamu]

So basically you're 100% in equities? It makes sense if you know that you will not be forced to sell during market downturns but since markets appear overheated right now, I feel I should have some kind of hedge to take advantage of next crash which may occur sooner than later.

When there actually is a crash, buying into it is incredibly difficult. It's easy to sit and imagine "taking advantage" of a crash, but buying something where the price is dropping every day is extremely counter-intuitive. Imagine if your portfolio had halved when you woke up this morning and the price is still tumbling. Also your job security becomes less than certain. Would you be able to sell some bonds to buy shares? You're more likely to do the opposite and cement your losses.

Personally I keep a large cash buffer (as Kanto said above), which then gives me the security to invest in 100% equities (well, and some crypto which keeps performing so well that the "change" from trying to sell it off keeps growing to a significant portion of my net worth). I am planning - and was successful last year although it was very short - to ride out the dips, like RetireJapan. I also invest new money monthly, which will allow me to take advantage of crashes by buying at (hopefully) temporarily lower prices. Although I admit I did consider skipping a couple of months when the prices were down.

If you are going to have other asset types, I think the key is to use a rules-based system and don't diverge from it. E.g. rebalance once every two years / once a year, etc. Or set a target asset allocation, and adjust how much of each you purchase each month to try to keep it steady. If you start trying to take custom action due to "unprecedented" events, there's no guarantee that your actions won't backfire.