Markets are plunging in the wake of President Donald Trump’s latest tariff measures… and many investors are beginning to fear the possibility of a recession.
You may be tempted to stay on the market sidelines—and keep your cash pile safe.
But that’s the wrong move…
Staying invested is critical for building wealth, even in dangerous markets…
For proof, look no further than the market’s long-term returns. Since the beginning of 2000—a period that includes several major market crashes and recessions—the S&P 500 is still up over 250%.
Put simply, staying invested—through thick and thin—pays off over the long term.
That said, you need to be careful where you invest during a market downturn: Buying into declining sectors is a recipe for more losses.
So, with that in mind, let’s look at three of the best places to put your money during a market crash. Each will help you make money while protecting your wealth…
1. Buy “franchises” (just like Warren Buffett does)
When you look at the long-term returns of Berkshire Hathaway (BRK.A), it’s pretty easy to see why Warren Buffett is considered the greatest investor of all time…
While it hasn’t been immune to recession-related selloffs, Berkshire has returned over 1,200% in gains since 2000.
We can apply Buffett’s investment lessons to our own portfolios.
The most important concept you need to know is how to invest in “franchises.”
In his 1991 letter to shareholders, Buffett defined a “franchise” as such:
“An economic franchise arises from a product or service that: (1) is needed or desired; (2) is thought by its customers to have no close substitute and; (3) is not subject to price regulation.”
In short, franchises are companies that are essentially immune from competition… have a loyal fan base… and can raise prices without losing a lot of customers. These factors create a “moat” that protects that company from competition.
Examples of franchises in Buffett’s portfolio include Coca-Cola (KO), Apple (AAPL), and American Express (AXP).
By contrast, a “business,” as defined by Buffett, earns exceptional profits only if it’s the lowest-cost operator… or if the supply of its product/service is tight. Even then, these kinds of “businesses” face constant competition.
This is why franchises tend to do better than less powerful “businesses” across all economic conditions, as they can rely on their loyal customer base to keep coming back, regardless of rising costs. As a result, they’ll typically generate growing profits—and, often, dividends—year after year.
In short, franchises are a near-perfect all-weather investment. They’ll help you sleep well at night, regardless of market conditions.
You can build a portfolio of individual franchises… or simply buy an ETF filled with these stocks, like the VanEck Morningstar Wide Moat ETF (MOAT).
2. Buy dividend growth stocks… and reinvest the dividends
One of the easiest ways to improve your investment returns is by reinvesting dividends.
Put simply, dividend reinvestment means using the dividends from an investment to buy more of it. It’s a way to boost your returns whether the market is heading up or down… and it works better the longer you stick with it.
When you reinvest your dividends, you’re continuously growing the number of shares you own. As a result, you’re amplifying your profit potential AND your dividends… all without the need to contribute any additional money.
Plus, when you reinvest dividends during a bear market, you’re buying more shares at lower prices. Not only are you probably getting the shares for cheap… you’re also setting yourself up for even bigger gains when the next uptrend begins. (And in a bull market, you’ll buy fewer shares as prices increase.)
Put simply, this strategy works in your favor whether the market is heading up or down.
The best way to take advantage of dividend reinvestment is to use it on companies that can deliver not just dividend yield but also dividend growth. The growing dividend will compound faster, dramatically improving your returns over the long term.
Some of the best sectors to find sustainable dividend growth stocks—regardless of economic conditions—include consumer staples, utilities, and healthcare… in short, industries that provide necessary services.
3. Own long-dated puts
One of the easiest ways to profit from stock market declines is by owning insurance via put options.
Buying a put option gives you the right (but not the obligation) to sell an underlying security at a specific price (strike) before a certain date (expiration).
Put simply, put options rise in value when their underlying asset goes down. In other words, they act like an insurance policy against a declining stock (or the market as a whole).
While buying a put will cost you money upfront (like an insurance premium), that’s the maximum you can lose if the asset doesn’t decline. And if it does decline below your strike price by expiration, you’ll get paid.
In other words, your downside is limited to the price of the contract. This makes it a relatively safe way to bet against a specific stock, sector, or index.
Conclusion
While market crashes are scary, you don’t want to pull out of the market completely. To profit in the long term, you need to stay invested—so when the next bull market comes, you’ll be ready for the upside.
And you can invest safely and profitably—even during a recession—by investing in the strongest franchises… reinvesting dividends… and building insurance via put options.
Tune into WSU Premium each week for more insights on how to position your portfolio for any market.
