If a Stock Market Crash Is Coming, This ETF Could Be the Smartest Buy Right Now

Nobody likes the thought of a stock market crash, but every investor should be prepared for one. As The Motley Fool notes, "The stock market loses 10% of its value about once per year on average. Declines of 20% tend to happen every four or five years. Even bigger stock market crashes, with the major indexes losing 30% of their worth, occur at roughly 10-year intervals."

No one knows where the current market is heading, but many investors are in or nearing fear mode, and it's always better to be overprepared than underprepared. I've been thinking about what might happen, and in the event of a stock market crash, I think the Vanguard Total International Stock ETF (NASDAQ: VXUS) would be a great ETF to have in your portfolio.

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One international ETF covers the bases

Vanguard Total International Stock ETF is a one-stop shop for international stocks, holding -- as I write this -- 8,738 companies spanning different sectors, industries, and regions. It truly stands by the "total international" in its name, offering exposure to companies in Europe (35.9%), the Pacific (28.9%), North America (8%), the Middle East (0.9%), and emerging markets (26.3%).

This brings the stability that typically comes with investing in companies in developed markets, as well as the growth opportunities that emerging markets may have. And since VXUS is so diverse, you don't have to worry about a single region's problems weighing down the ETF.

This ETF serves two main roles

Many crashes in major U.S. stock indexes stem from America-specific economic or policy developments. There are exceptions -- such as the COVID-19 crash, which was global -- but many stay within the borders. Owning international stocks is a way to hedge against those domestic challenges.

VXUS may not consistently outperform the American market, but it does a good job picking up the slack when domestic stocks are in a down or cooling period. Just this year, it's up 14% compared to the S&P 500's 10% and the Nasdaq Composite's 13%.

VXUS Total Return Level data by YCharts

It may sound counterintuitive, but investing in VXUS isn't always about outperforming the market; it's about having a reliable defense in place. And with a 2.6% dividend yield (3% average over the past five years), VXUS rewards investors with attractive income.

Use VXUS as a supplement

I think it makes sense to cap your exposure to international stocks at 10% because American stocks remain the most dependable source of long-term growth. Still, up to 10% is a good baseline because it's just enough for diversification, without sacrificing growth opportunities that generally come with investing in American powerhouses.

There are a handful of good international ETFs to choose from, but you can't beat the breadth of VXUS with its 0.05% expense ratio. It's likely to remain a staple in my portfolio for quite some time.

Stefon Walters has positions in Vanguard Total International Stock ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.