The U.S. stock market has performed very well so far this year. As of Oct. 24, the S&P 500 has a year-to-date total return – that is, including dividends – of 21.8%. That’s about 70% higher than the S&P’s 10-year annualized total return of 12.8%, and there are still two months left to go.
While investors have reasons to rejoice in the past performance of their equity holdings, a measure of caution is warranted. Unfortunately, stock market crashes and corrections are part of investing, and smart investors should always be prepared for them.
The most famous market crash happened in October 1929, catalyzing what would become the Great Depression. Overall, the stock market lost almost 30% of its value between Oct. 24 and Oct. 29 of that year, and fully 79% from its pre-crash peak to the lowest point of the Depression era. The market crashed again almost a decade later, giving back 49% of its value between August 1937 and March 1938.
Since the end of World War II, U.S. stock markets have experienced no fewer than 11 crashes, including three in the 21st century: the dot-com crash of 2000, the subprime mortgage crash of 2007 and the pandemic crash of 2020. These things can’t be predicted with precision, but looking back over the last 120 years, the stock market has a discernible pattern of crashing every seven to 10 years.
Once investors understand that stock market crashes – to say nothing of even more common bear markets and corrections – can and do happen, the question becomes: How do you invest for a stock market crash?
During market crashes, all sectors are affected to a degree. When professional money managers and Wall Street brokers talk about hedging against the possibility of a crash, they’re talking about positioning portfolios against downturns, mitigating the damage market crashes can do and being ready for an eventual recovery. For the retail investor, this means depending on the principle of diversification and choosing defensive securities in resilient sectors.
Exchange-traded funds, or ETFs, are a useful tool for retail investors. The securities in ETFs are selected by skilled money managers or based on stock market indexes. Most ETFs are broadly diversified, sometimes having dozens, hundreds or thousands of individual issues in a single fund. ETFs that invest in defensive equity sectors such as consumer staples, health care and utilities can help hedge against sharp drawdowns, corrections and crashes. ETFs that specialize in non-correlated assets such as bonds, precious metals and commodities can also have a stabilizing influence on a portfolio – especially during a crash.
No investor can predict or prevent stock market crashes, but all investors can be prepared. If the financial markets, the economy or world affairs have you worried, here are seven ETFs that can hedge against a stock market crash:

Vanguard Short-Term Bond Index Fund ETF Shares (BSV)

Historically, bonds are a popular way to diversify a portfolio away from stocks. The principle of non-correlation can make bond ETFs an effective hedge during a stock market crash. Also, when the market is crashing, there is often a flight to safety, meaning investors move funds out of riskier assets like stocks to more conservative assets like high-quality short-term bonds.
BSV is an index fund with assets of $34 billion. The fund tracks the Bloomberg U.S. 1-5 Year Government/Credit Float Adjusted Index. BSV holds U.S. government bonds, high-quality corporate bonds and international dollar-denominated bonds with remaining maturities between one and five years.
The focus on current income, high credit quality and relatively short maturities makes BSV a defensive ETF that investors will be glad they own when stocks lose major ground.
BSV is a low-cost ETF with an expense ratio of 0.04%. The fund has a 30-day SEC yield of 4%.

SPDR Gold Shares (GLD)

Gold might be the oldest and most universally accepted hedge against stock market crashes, inflation, currency devaluation, and general economic or geopolitical turmoil. Precious metals generally, and gold in particular, are seen not just as investable assets but as a true store of value in good times and bad.
Buying and holding GLD is one of the simplest and most convenient ways to gain exposure to gold. The fund’s only objective is to accurately reflect the price of gold bullion after the expense ratio of 0.4% is accounted for. It seeks to achieve this objective by investing in only one asset: gold bars.
With current assets topping $78 billion, GLD is the world’s largest gold-backed ETF.

iShares U.S. Utilities ETF (IDU)

IDU is a $1.5 billion ETF designed to mirror the Russell 1000 Utilities 22.5/45 Capped Index. The fund invests in utilities sector stocks found in the large-cap Russell 1000 index, a benchmark representing the 1,000 largest companies in the U.S. by market value.
The utilities sector is widely considered a defensive asset class. Utilities such as natural gas and electric companies tend to maintain demand regardless of market action. In addition, utilities are known for paying steady dividends, which can dampen the negative effects of a weak stock market.
IDU mitigates concentration risk by limiting the weighting of individual stocks. No single stock is allowed to make up more than 22.5% of the fund’s assets, and the total weighting of stocks that make up more than 4.5% of the index cannot exceed 45% of the fund’s assets.
IDU has a 30-day SEC yield of 2.3% and an expense ratio of 0.39%.

Vanguard Health Care Index Fund ETF Shares (VHT)

VHT is a specialty health care ETF designed to broadly represent the health care industry. The fund’s assets stand at $18.6 billion.
Demand for health care products and services is generally non-discretionary. People still require prescription drugs, medical treatments, doctors’ visits and other health-related services no matter what the stock market is doing. That’s why investors looking to hedge the risk of a market crash should consider VHT.
VHT follows the MSCI U.S. Investable Market Health Care 25/50 Index, and the fund invests in stocks of large-cap, mid-cap and small-cap companies. There are currently 417 holdings in the portfolio, but single-stock concentration is limited to no more than 25% of the fund’s assets.
VHT is a low-cost index ETF, with an expense ratio of just 0.1%.

Invesco DB Commodity Index Tracking Fund (DBC)

The primary value of commodities as a hedge against a stock market crash is in the fact that they are a non-correlated asset class. This doesn’t mean that they will necessarily go up when the stock market is going down, but it does mean that commodities often move independently of other major financial assets. In fact, sometimes a spike in commodities prices can accompany or precede a global economic downturn, as it did with the Great Recession.
From a diversification perspective, this $1.4 billion ETF might enhance any portfolio at any time, but this fund may be particularly helpful as a stabilizing influence during market crashes or other financial calamities.
DBC does not invest in stocks or bonds of commodity companies. This ETF buys, holds and trades a variety of commodity futures contracts on energy, metals and agriculture exchanges. It is an index ETF, but the index it tracks – the DBIQ Optimum Yield Diversified Commodity Index – is not widely followed outside of the highly specialized field of commodities investing.
DBC is not an inexpensive fund: The expense ratio is 0.87%, reflecting the specialized nature of the fund and a high level of internal trading.

iShares Residential and Multisector Real Estate ETF (REZ)

Residential real estate can be an excellent hedge in the event of a stock market crash. When stocks are falling and economic uncertainty is the order of the day, people will prioritize essential spending over discretionary expenses. Housing is, of course, an essential expense – it won’t be neglected because of a bad market.
REZ is a $1.2 billion ETF filled with real estate investment trusts, or REITs. It’s designed to match the performance of the FTSE Nareit All Residential Capped Index after the expense ratio of 0.48% is subtracted. While the fund is primarily a residential REIT ETF, it also holds some health care and self-storage REITs as well. Those REITs add to the value of REZ as a hedge; both the self-storage and health care industries enjoy significant defensive characteristics.
Income investors will find something to like here, too, with a 2.3% 30-day SEC yield.

Direxion Daily S&P 500 Bear 3X Shares (SPXS)

The ultimate hedge against a plummeting stock market would be an ETF that goes up when the stock market goes down – and indeed, such an ETF exists. SPXS is designed to do just that, except it actually seeks to return three times the inverse performance of the S&P 500 on a daily basis. In other words, the portfolio is managed in such a way as to go up about three times as much as the S&P goes down.
Investors need to be aware, however, that SPXS is a highly aggressive ETF. To achieve its objective, it uses leverage, sells S&P stocks short and invests in a sophisticated array of derivative securities including futures, options and swap agreements. The fund will appreciate significantly when the stock market is falling, but will also fall dramatically when the stock market is going up.
Remember that the fund is explicitly designed to triple the inverse performance of the S&P 500, but only on a daily basis. This is an important caveat, as due to the sequencing of returns and other factors, SPXS is almost guaranteed to not perform the same way over longer periods, so it is best for aggressive traders and speculators on a short-term basis.
SPXS can be a useful hedge during a crash, but it will be a significant liability when the market turns around. Due to the high volume of trading and complicated strategies required to facilitate its performance goal, the expense ratio for this ETF is rather high, at 1.07%.