My 3-Point Checklist for Prospering in a Crash
I was dusting my living room when I found it.
At the top of my bookshelf teetered the red wooden vase I brought back from Bangkok. It fell over … and a handful of $20 bills spilled out.
I felt like Indiana Jones finding that golden idol during the opening scene in Raiders of the Lost Ark. Luckily, the ceiling didn’t cave in and a giant boulder didn’t come crashing into the room (although maybe my round cat counts).
Suddenly, I remembered that I stashed that money away two years ago. I do that every now and then.
I don’t know about you, but it makes me feel safe to know I have something I can rely on. Something real. Plus, if I’m splitting a bill with friends, buying food from a street vendor, or I really, really need a bag of potato chips from the vending machine, I don’t have to panic.
I know I have it covered.
As the market sold off on Thursday, and I watched the Dow Jones Industrial Average tumble more than 700 points, I thought about that money.
Not because it was enough to do more than make me rich in potato chips … but because it reminded me of what it’s like to prepare for something. To feel safe.
It’s a feeling a lot of investors like us want, particularly as worries of a crash start to flit through our thoughts.
Now, I’m not saying the market is headed that way at the moment. But manufacturers, aluminum producers and steelmakers’ shares slid sharply lower this week over trade war concerns. Add to the mix worries over inflation, rising interest rates and falling technology shares … and you can see why the market has been so volatile lately.
We’re building to something.
In fact, the CBOE Volatility Index — the VIX, or “fear index” — popped 30.7% to 23.35 on Thursday. The WSJ Market Data Group reports that the VIX has seen seven moves of at least 20% this year — the most since 2014.
This is historic volatility.
That’s why I think it’s prudent to start thinking of how to prepare yourself now. So today, let’s take a quick look at my three-point checklist for preparing for a crash:
1. Rebalance your portfolio: After this nine-year bull market, your portfolio might be more aggressive right now. And that means you might be more exposed to risks than you think. So take this time to consider how much of your portfolio is in bonds, stocks and cash.
Then figure out how you want to rebalance your assets based on your risk-tolerance level. You might want to pare down on stocks and increase your exposure to bonds.
If you’re not sure of how your funds are divvied up, just put the names or ticker symbols of your funds into Morningstar’s Instant X-Ray tool.
For more help with portfolio management and ensuring your nest egg is safe, just click here.
2. Invest in assets that will increase: This is an easy one to say. Of course you should find assets that will increase during a crash. But what exactly are those?
Well, there are a number of areas you can focus on, but today I want to highlight the precious metal and the Internet of Things (IoT) asset areas.
Precious metals are the investments that have a habit of rising when standard stocks tank. They act as a “safe haven” position as investors flock to them in times of fear. That’s why gold jumped 25.5% from October 9, 2007, to March 9, 2009 — while the S&P 500 crashed 56.8%.
And this isn’t a one-time thing.
In fact, on Thursday, gold prices saw a two-week high as that trend played out. And on Friday, the price of gold skyrocketed above $1,350 — breaking two resistance barriers in a row.
So if you don’t have exposure to this area, it’s time to start looking!
To learn exactly which stocks to focus on, follow natural resource expert Matt Badiali. You can read more about his trading strategies by clicking here.
As for the IoT — I will always recommend this area during golden and tough market times alike. I have complete confidence IoT stocks will continue to soar in the years and decades ahead.
Smart technology makes life cheaper, simpler and safer. That’s all there is to it. And businesses know that.
That’s why the sheer number of IoT devices continues to grow every year.
In fact, Gartner estimates that number will reach 26 billion by 2020 — a 30-fold increase from 2009. Better yet, Grand View Research recently projected the global IoT market will reach $933 billion by 2025.
This is an area you want to be in — no matter what the market is doing. You can read more about taking advantage of that revolution here.
3. Buy short-term puts: Finally, start considering a short-term put-option strategy. This is a great way to profit when the markets — and individual stocks — fall. That’s because a put option increases in value as its underlying stock falls. Meanwhile, your risk is limited to the amount of money you put in.
I’m a big fan of puts. If a stock falls by, say, 6%, the put option you bought on it could shoot into a triple-digit gain. All while other people wring their hands in worry.
With fears of a crash on the horizon, there will be more opportunities to make money from downtrends. So start learning about this strategy if you don’t know about it yet.
After all, that’s why systems expert Chad Shoop uses a put-option strategy in his Quick Hit Profits trading advisory. He’s used it to make gains of 100% in as little as five days.
You can read more about that strategy here.
Of course, there are many other strategies out there, but these are a few that will keep you ahead of the pack.
These are your “money in a Bangkok vase” safety plans. They’ll keep you calm as other investors panic during a sell-off.
Just learn from my mistake, and don’t forget where you put your money!
Catch you next week.
Managing Editor, Banyan Hill Publishing