3 Vanguard ETFs to Buy to Protect Your Portfolio From a Potential Stock Market Crash
Key Points
After a three-year bull market in U.S. stocks, it's worthwhile to consider different ways to protect some of those gains.
Investing in bonds and low-volatility stocks are two common ways to reduce broader portfolio risk.
These three Vanguard ETFs should provide differing levels of downside protection and risk reduction in the event of a bear market.
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For perhaps the first time since 2022, investors seem genuinely fearful of a bear market in stocks. That hasn't shown up in equity prices yet -- the S&P 500 is virtually flat in 2026, but value, dividend, and international stocks have taken over as leaders. There's enough concern about the jobs market, affordability, and the impact of tariffs that it could make stocks vulnerable to a correction.
As of now, expectations for GDP and earnings growth, along with stable inflation, aren't raising any imminent red flags for markets. But it's always wise to consider preparing your portfolio ahead of time, should conditions change quickly.
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If you're worried that stocks are at risk for a bear market or you just want to dial down potential volatility in your portfolio, here are three ways that Vanguard ETFs can help.
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The traditional Treasury bond hedge
Investors often use Treasuries as a downside hedge against stocks. When stocks turn lower, investors frequently look for safer assets. What's safer than U.S. government-backed Treasury bonds?
The Vanguard Short-Term Treasury ETF (NASDAQ: VGSH) keeps volatility low by focusing exclusively on bonds with shorter-term maturities. The government backing helps to virtually eliminate default risk while the short-term focus reduces the impact of interest rate fluctuations. Plus, the 3.6% yield offers a safe stream of income.
Core bond market protection
Investors don't need to focus solely on U.S. Treasuries for safety. Investment-grade corporate bonds can also provide a risk hedge, though they may behave differently.
The Vanguard Total Bond Market ETF (NASDAQ: BND) essentially invests in the entire U.S. investment-grade bond market. That can include U.S. Treasuries, mortgage-backed securities (MBS), corporate bonds, and other debt instruments. Because it typically invests in a broader range of security types and maturities, it's a bit riskier than a short-term Treasury fund.
But the diversification of holdings helps control some of that volatility and the 4.2% yield offers an income premium in exchange for taking on some of that added risk.
Going defensive within equities
When hedging against a market correction, many investors aren't willing to give up their equity exposure altogether. In that case, shifting part of your portfolio over to more defensive equities makes some sense.
The Vanguard U.S. Minimum Volatility ETF (NYSEMKT: VFMV) is actively managed and invests in a diversified portfolio of stocks expected to exhibit lower volatility than the broader market. Investing in these types of stocks reduces megacap tech and growth exposure while allocating more heavily toward value and defensive equities. It's the type of shift within the equity sleeve of a portfolio that can help reduce some downside risk.
Currently, the top four sector holdings are technology (26%), industrials (12%), consumer discretionary (11%), and financials (11%). The tech allocation might be a bit counterintuitive, but these mostly aren't the tech highfliers you might be thinking of. Apple and Microsoft did make the top 10 holdings, but the ETF also includes names like Analog Devices, Keysight Technologies, Texas Instruments, and Lam Research. The other sector exposure should also help provide some balance.
Vanguard ETFs for protecting your portfolio
While these Vanguard ETFs aren't guaranteed to provide downside protection in a bear market, they should each offer some cushion and reduce overall volatility. Each will perform differently, however, and what you choose for your portfolio should depend on your own goals and risk tolerance.
Given that we've seen the S&P 500 rise by more than 15% in each of the past three years, it's prudent to at least consider the possibility that U.S. stocks are overdue for a breather. Diversification away from tech has already paid off in 2026 and could pay off again should the broader market begin to decline.
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David Dierking has positions in Apple. The Motley Fool has positions in and recommends Apple, Lam Research, Microsoft, Texas Instruments, and Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.
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