How To Protect Your 401k From A Stock Market Crash 2021

Diversification, Dollar Cost Averaging, Indexing, Cash-rich Stocks, CD's, Bank Stocks or Gold. There Are Many Strategies, But Which Are The Best?

Moving to Cash, Diversification, Dollar Cost Averaging, Indexing, Cash-rich Stocks, CD’s, Bank Stocks, or Gold. There Are Many Strategies: Here is a Selection of Options To Choose From?

How To Protect Your 401K /Retirement Safe In A Stock Market Crash
How To Protect Your 401K /Retirement Safe In A Stock Market Crash

The total protection of your money from a market crash is impossible. However, you can minimize your risks and protect most of your investments with a few precautions.  Thus, keeping most of the assets in your 401K safe in a bear market is possible. However, you must be careful not to sacrifice your portfolio’s ability to grow to avoid risks.

Instead, you need to balance security and growth. Fortunately, achieving such a balance is easier than most people realize.

1. Move To Cash & Bonds

The simple truth is that when there is a real stock market crash, most, if not all, stocks fall.  So diversification in safe stocks will not help you.  The best course of action is moving your portfolio to cash or government bonds.  This means total protection from falling stocks.

Move to Cash in a Crash

Generally, stocks fall in value twice as quickly as they gain value.  The best price gains are longer-term uptrends over multiple years.  Crashes happen quickly and violently due to the panic and fear in the market.  However, a real crash can be devastating to your wealth, luckily they are fairly infrequent.

Worst Stock Market Crash Years
Worst Stock Market Crash Years

The three worst crashes of all time were the great depression of 1929, the worst year being 1931 with a 47% drop, followed by 1937 with a 39% drop.  The next worse was in 2008 with a 38% drop in one year.


However, there is one problem with moving to cash; it is the timing.

How to Avoid the Next Stock Market Crash - eBook & Video Training
How to Avoid the Next Stock Market Crash – eBook & Video Training

If you move to cash too early and the market recovers quickly, then you may miss out on stock market gains.

Move too late, and you will have lost too much money; in this case, you should employ a dollar-cost averaging strategy.

The problem of timing, you move to cash is covered with our Stock Market Crash Detector System.

[Related Article: Avoid The Crash Move To Cash]

2. Use Dollar-Cost Averaging

Dollar-cost Averaging In Stocks is a Great Way for Long-term Investors to Maximize Profits & Lower Risk. Analysis of Bull, Bear & Sideways Markets. Learn the advantages and disadvantages.

Dollar-cost Averaging is a method of investing whereby an investor scales into a long-term investment with a fixed amount regularly (e.g., monthly). When the price of the investment goes down, they receive more shares for their money, and when it increases, they get less.  This averages down the cost per share, promoting a successful outcome.

Related Article: Dollar Cost Averaging In Stocks [8 Top Investing Strategies]

3. Understand How Your Portfolio is Impacted

The key to understanding how your stock portfolio may be impacted is to use the right tools to analyze your current holdings and enable you to perform the proper research to enable your investing strategy.

For example, if your current portfolio is already very defensive and has a low correlation with the current market direction, you may not need to take aggressive action.

Portfolio analytics and stock research are the keys to long-term successful investing. You need a tool that can provide:

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  • Portfolio Rebalancing Tools
  • Stock Correlation Reporting

Stock Rover is our recommended Stock Screening, Research, and Portfolio Management tool, winning both our Best Stock Market Software Review and our Best Stock Screener Review.

Stock Rover can perform detailed portfolio analytics and assessment and help with rebalancing your portfolio. Not only that, but it can also connect to your broker and even help you create a Warren Buffett Value Investing Portfolio or a stable Dividend & Income Portfolio.

Stock Rover Dashboard - Screenshot
Stock Rover Portfolio Analysis Dashboard

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4. Diversify to Protect your 401K from a Market Crash

There is no foolproof strategy that will keep your portfolio safe. However, you can mitigate your risks with basic moves like diversification.

The first strategy for protecting your nest egg is diversification. To explain, put your money in several places, so you do not lose everything.

For instance, invest in different stocks and U.S. Treasury Bonds. An example of basic diversification is 20% tech stocks, 20% finance stocks, and 20% energy stocks.

In addition, invest in several good dividend stocks so you will have money coming in. A great rule to follow is to have at least 50% of your 401K funds in dividend stocks.

Finally, having part of your funds outside of stocks will keep part of your money from a crash. Simply, having 20% of your funds in C.D.s or Bonds can ensure you will have cash.

Good diversification can be provided by using the Portfolio Correlation Functionality in Stock Rover.

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5. Choose Dividend Stocks

The most important protection from any market correction is to have a steady stream of cash coming in. Even a small but regular cash payment can protect you.

Thus, you need to keep part of your 401K in a CD or treasuries or other investment that pays cash interest. Also, you can augment that income with dividend stocks.

The smartest strategy is to reinvest that cash in your 401K to grow the portfolio. Hence, you must take advantage of compound interest. When you compound, you reinvest interest in the principal to grow the investment.

Hence, it pays to own dividend stocks and cash-generating investments like C.D.s even if the payout is low. Conversely, such investments will pay off best if you reinvest the cash.

In-depth Dividend Analysis & Peers Comparison With Stock Rover
In-depth Dividend Analysis & Peers Comparison With Stock Rover

[Related Article: How to Build a Great Dividend Stock Portfolio – Step by Step Guide]

6. Consider a Simple Index Fund

Strangely, a simple index fund that tracks an underlying index like the Standards & Poor’s S&P 500 is one of the safest investments around.

For instance, the annual return of the S&P 500, the 500 most valuable publicly traded companies in America, between 1926 and 2018 was 10%. Notably, that period includes four stock market crashes in 1929, 1987, 2000, and 2008. Yet, the overall market growth continued despite World War II, the Great Depression, the Cold War, September 11, many political crises, and other cataclysmic events.

Indexing can protect your money because it diversifies it. For instance, the S&P 500 contains a wide variety of companies in different businesses.

Additionally, indexing protects your money from emotions because it is automatic. Hence, nobody’s prejudices are influencing how they pick the stocks. Instead, an algorithm picks the stocks using simple criteria, such as the companies’ value.

  • Tip: Stock Rover provides detailed reporting and ratings for all ETF’s and Mutual Funds in the USA & Canada

[Related Article: 7 Good Reasons to Buy ETF’s Over Stocks]

Thus, putting 10% to 25% of your 401K in an exchange-traded fund (ETF) like the State Street S&P SDR 500 (NYSES ARCA: SPY) can protect your money. However, indexed funds are vulnerable to short-term losses.

7. Reinvest Extra Money in an Indexed Fund

You can provide an additional layer of protection by automatically reinvesting extra cash in an indexed fund.

For instance, you can invest dividends or bank account interest in an S&P 500 indexed fund. Thus, you could lock in a 10% growth rate for at least part of your money.

Therefore, you can make compound interest part of your 401K and ensure that some of your money is growing. Moreover, you can enhance compound interest by combining it with the S&P 500, which has a long history of growth.

8. Invest in High Cash Companies

Some companies are in a far better position to survive and thrive in a stock crash than others. In particular, companies with a lot of money grow and make more money in a crash.

For instance, Warren Buffett’s Berkshire Hathaway (NYSE: BRK.B) expanded during the stock market crash of 2008. In fact, Berkshire Hathaway (BRK.A) bought the Burlington Northern Santa Fe Railroad (BNSF) for $26 billion in cash and stock in 2009. Berkshire could buy them because it had lots of cash.

Hence, investing in companies with large amounts of cash on hand is a great way to protect your portfolio from a market crash. You can learn how much cash a company has by checking its balance sheet. Companies list cash as cash and equivalents, short-term investments, or cash and short-term investments in their balance sheets.

Currently, companies with a lot of cash include:

  • Berkshire Hathaway (NYSE: BRK.B)
  • Alphabet (NASDAQ: GOOG)
  • Apple (NASDAQ: AAPL)
  • Oracle (NYSE: ORC)
  • Microsoft (MSFT)
  • Ford (NYSE: F)
  • Facebook (NASDAQ: F.B.)
  • Banks. Notably, big banks like Goldman Sachs (NYSE: G.S.)
  • Wells Fargo (NYSE: WFC)

Concentrating your investments in high-cash industries like finance and technology is one way to protect yourself from crash effects. Moreover, avoiding low cash companies like retailers is a good way to protect your funds.

Finally, a simple rule of thumb you can follow is to only invest in companies with at least $20 billion in cash. Such companies are more likely to profit and grow during a crisis.  Stock Rover provides a 10-year history and cash forecasting data for all stocks on the USA and Canada stock exchanges.

9. Let the Government Protect your Money as Warren Buffett Does

Another strategy Buffett uses is to let the government protect his money. For example, two of the five most significant investments Buffett lists in his 2019 Berkshire Hathaway shareholder letters are giant banks.

Those banks are Wells Fargo and Bank of America (NYSE: BAC). Interestingly, Wells Fargo and Bank of America are two of the infamous “too big to fail” financial institutions. That means the U.S. federal government must bail those banks out in a crisis because their collapse could trigger a depression.

The federal government bailed Wells Fargo out with $25 billion during the 2008 financial crisis. Moreover, Wells Fargo paid a dividend of 45₵ on March 1, 2019. Therefore, Wells Fargo is a dividend stock that adds another layer of protection.

Hence, Buffett protects his money by investing in institutions the government is likely to rescue during a crisis. Therefore, Buffett lets the taxpayers protect his funds by investing in big banks.

Buffett’s thinking is that banks can run to Washington for help during a major crisis. Furthermore, the politicians will have to bail the bankers out to keep the crisis from getting worse.

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10. Invest in Banks

You can use the same strategy by investing in big banks. Plus, banks offer another layer of protection in the form of lots of cash.

For instance, Wells Fargo had $173.287 billion in cash and equivalents on December 31, 2018. Moreover, Goldman Sachs (NYSE: G.S.) had $130.547 billion in cash and equivalents on the same day.

Additionally, the Federal Deposit Insurance Corporation (FDIC), a government agency, insures most individual bank accounts in the United States. Under those circumstances, banks offer the highest level of protection against a market crash.

Finally, bank stocks often pay outstanding dividends. For instance, Goldman Sachs will pay an 80₵ dividend on March 28, 2019. Consequently, you can reinvest the dividend in more bank stocks or savings to add more protection to investors.

Under these circumstances, bank stocks or bank stock exchange-traded funds are one of the best means of protecting your 401K from a stock market crash. Banks are stocks that are not fashionable, but they can protect your money.

This is by no means foolproof, as many banks almost became penny stocks in the 2008 financial crisis.

11. Avoid Precious Metals

The greatest mistake you can make is to take your funds out of stocks and put them in alternatives like precious metals and cryptocurrencies.

You must avoid precious metals because they lose value and do not recover. For instance, the highest historical price for an ounce of gold is $2,128.42, recorded in February 1980.

Somebody who bought gold in 1980 at that price is still underwater because the inflation-adjusted price has not gotten close to $2,128.42 in 39 years. The price of gold was nearly $1,000 lower, at $1,317.30 an ounce, on March 21, 2019.

Therefore, precious metals do not protect from market crashes. In fact, you will lose more money with precious metals because you will miss out on stock market gains.

Gold may not Protect Your Money.

Specifically, $2,128.42 invested in the S&P 500 in 1980 would have grown to $6,517.82. Also, the inflation-adjusted return on that money with dividend reinvestment was 11.353%.

In the final analysis, a gold investor will lose money and miss out on stock market gains. Hence, gold is not a good hedge against stock market crashes.

Notably, there were three major stock-market crashes; 1987, the 2000-2002 bust, and the 2008 meltdown during the years between 1980 and 2019. Yet, the S&P investor still received an 11.353% return on his investment.

Thus, precious metals do not belong in your 401K if you want to make money.

12. Stay away from Cryptocurrencies

Next-generation financial technologies like cryptocurrencies are even more dangerous than precious metals. For instance, all cryptocurrencies lost 80% of their values between January and September 2018.

Thus, the cryptocurrency crash of 2018 was worse than the crash of 2018. Bloomberg claims. For example, Ethereum (ETH), the second most popular cryptocurrency, had a Coin Price of $539.27 on March 24, 2018. However, Coinmarketcap calculates Ethereum’s price fell to $137.32 on March 24, 2019.

Consequently, cryptocurrencies are far more unstable than stocks, so you should stay away from them. Cryptocurrencies are more unpredictable because they are a new technology that most investors do not understand.

Obviously, cryptocurrencies do not belong in your 401K because altcoins are more likely to crash than stocks. Therefore, stay away from cryptocurrency unless you have a high tolerance for risk and money to burn.

Summary: Keeping your 401K safe

Finally, history proves stock market crashes are rare events that long-term market gains will make up.

If you can time the market to avoid the worst of a crash, then this is a good option.

Secondly, another way to keep your 401K safe is to keep your money in the market and use dollar-cost averaging to your advantage. Notably, the stock market erased all the losses from the 2007-2008 crash by October 2012, just four years later, and if you had doubled down on your investing during the worst periods of the crash, you would have a chance to outperform the market.

Stock Market Crash Analysis & Predictions
Stock Market Crash Analysis & Predictions

This is not specific financial advice; I am not a registered financial advisor; I am a market analyst.  If you are concerned about your investments, seek the help of a registered financial advisor who can provide tailored advice to suit your specific risk and portfolio requirements.

Daniel G. Jennings is a highly-experienced freelance writer and blogger who lives and works in Colorado, USA. Jennings has written extensively about value investing, the stock market, retail, cryptocurrency, politics, marketing, technology, and many other subjects. His writing has appeared at Seeking Alpha, The Motley Fool, Geek Crunch Reviews, Empresa Journal, and many other websites. Jennings makes daily posts of his latest writing to


  1. Im pretty sure that highest gold price in feb 1980 you are quoting is inflation adjusted. If that the case you kind of just made the point for PM’s as a safe haven! All in all good article though. Thoughts on the current bond bubble though?! Everything is so scary for 401k. I think it’s best to remind one’s self that it’s all pretty much a bubble and our accounts are not 100% real so don’t count on whatever is in there right now lol. Dang it!


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