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

As the stock market appears to be in a precarious position, prudent investors are looking for ways to protect their capital. History has shown that certain exchange-traded funds (ETFs) have performed better than others during market downturns. According to Warren Buffett's market valuation metric, which is well above his previous warning levels, it's important to take precautionary steps.

One ETF that has become a favorite among income investors is the Schwab U.S. Dividend Equity ETF (SCHD). With a solid 3.3% dividend yield and 15 years of paying regular quarterly distributions, this ETF is designed to provide income. However, it's also considered a good defensive investment alternative if a stock market crash is on the horizon. The fund's portfolio consists of 102 high-quality stocks, with 41% being consumer staples and healthcare stocks, which tend to outperform during market downturns.

The State Street Health Care Select Sector SPDR Fund (XLV) is another ETF that offers a way to invest in the healthcare sector. Holding 60 of the largest healthcare stocks, this fund provides exposure to companies such as Eli Lilly, Johnson & Johnson, AbbVie, Merck, and UnitedHealth Group. The healthcare sector tends to be resilient during market downturns as people continue to take medications and seek medical treatment.

While the fund has experienced pullbacks in the past, it has recovered more quickly than the overall market.

For those who want to follow Buffett's lead, short-term Treasury bonds can be a prudent choice. Berkshire Hathaway holds roughly $325 billion of cash in short-term Treasuries. The State Street SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) provides investors with exposure to U.S. Treasury bills with maturities between one and three months.

This ETF pays a distribution yield above 4%, making it a reliable income generator while waiting for opportunities to buy stocks at a discount. While it may not deliver tremendous returns during a stock market crash, it will protect investors' capital and generate reliable income.