If a Stock Market Crash Is Coming, History Says These 3 ETFs Are the Smartest Buys

You don't have to look hard to find signs that the stock market's run is in a precarious position. One example: Warren Buffett's favorite market valuation metric is well above the level at which he has previously warned that investors are "playing with fire."

It's never a good idea to panic if a storm is potentially on the horizon. Instead, prudent investors take wide precautionary steps to be prepared.

Looking to the past to see which investments have held up better than others can be especially instructive. If a stock market crash is coming, history shows that these three exchange-traded funds (ETFs) rank among the smartest choices.

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1. Schwab U.S. Dividend Equity ETF

The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) has become a favorite among income investors for good reason. It pays a solid 3.3% dividend yield and has paid regular quarterly distributions since its inception 15 years ago.

However, this ETF isn't only a good pick for income investors if a stock market crash is around the corner. The quality of the 102 stocks in the Schwab U.S. Dividend Equity ETF's portfolio makes the fund one of the better defensive investment alternatives around.

The ETF attempts to track the performance of the Dow Jones U.S. Dividend 100 Index. This index focuses on U.S. stocks that consistently pay dividends with attractive yields and are fundamentally strong compared to their peers.

Roughly 41% of the Schwab U.S. Dividend Equity ETF's holdings are consumer staples and healthcare stocks. Both sectors tend to outperform most others during steep market downturns.

2. Health Care Select Sector SPDR Fund

Speaking of healthcare, the State Street Health Care Select Sector SPDR Fund (NYSEMKT: XLV) offers one of the easiest ways to invest in the sector. This ETF holds 60 of the largest healthcare stocks, with top holdings including Eli Lilly (NYSE: LLY), Johnson & Johnson (NYSE: JNJ), AbbVie (NYSE: ABBV), Merck (NYSE: MRK), and UnitedHealth Group (NYSE: UNH).

The State Street Health Care Select Sector SPDR Fund has handily outperformed the S&P 500 (SNPINDEX: ^GSPC) over the last 12 months. That isn't surprising considering the rising uncertainty that investors are facing.

People don't stop taking medications or forego seeking medical treatment for serious issues because the stock market falls. As a result, healthcare companies' businesses tend to be highly resilient.

To be sure, the State Street Health Care Select SPDR Fund isn't immune to market downturns. For example, the ETF declined when the dot-com bubble burst in 2000 and in the financial crisis of 2008. However, its pullback was much less severe, and it recovered much more quickly than the overall market in both periods.

3. SPDR Bloomberg 1-3 Month T-Bill ETF

What's Warren Buffett's favorite investment when turbulence is likely? Short-term Treasury bonds. Roughly $325 billion of Berkshire Hathaway's (NYSE: BRKA) (NYSE: BRKB) cash was parked in short-term Treasuries as of the end of the second quarter. The State Street SPDR Bloomberg 1-3 Month T-Bill ETF (NYSEMKT: BIL) provides a straightforward way for investors who aren't billionaires to follow Buffett's lead.

As its name indicates, this ETF offers exposure to U.S. Treasury bills with remaining maturities between one and three months. It attempts to track the performance of the Bloomberg 1-3 Month U.S. Treasury Bill Index.

The State Street SPDR Bloomberg 1-3 Month T-Bill ETF currently pays a distribution yield above 4%. And because the Treasuries it owns are so short-duration, it isn't experiencing the volatility that many bond funds are these days as interest rates rise.

This fund won't deliver tremendous returns if the stock market crashes. What it will do, though, is protect investors' capital and generate reliable income while they wait for great opportunities to buy stocks at a discount. This approach has worked quite well for Buffett through the years.

Keith Speights has positions in AbbVie and Berkshire Hathaway. The Motley Fool has positions in and recommends AbbVie, Berkshire Hathaway, Eli Lilly, and Merck. The Motley Fool recommends Johnson & Johnson and UnitedHealth Group. The Motley Fool has a disclosure policy.