THE DISASTER PROOF PORTFOLIO

Transcription

1 THE DISASTER PROOF PORTFOLIO 3 STRATEGIES TO PROTECT YOUR MONEY FROM MARKET VOLATILITY STARTING TODAY SEVEN FIGURE PUBLISHING

2 The Disaster Proof Portfolio 3 Strategies To Protect Your Money From Market Volatility Starting TODAY Did the market swings earlier this year get your attention? Good! An aware investor is the more successful investor. The Dow Jones Industrial Average was rocky in the month of February and has yet to let up since. Most experts realize that it was only a matter of time before the stock market gave back some of its relentless gains from the end of The S&P 500 went a never-been-seen 100 trading days without so much as a 0.6% daily decline! The question, of course, is whether or not the sell off accelerates things into a more painful correction OR is just another buying opportunity in the midst of the most powerful, long-lasting bull market you ll see in your lifetime. Risk management is never dumb and is, in fact, more important today than at any time since the Financial Crisis. One of the brightest financial minds in the world is William White of the Organization for Economic Co-operation and Development (OECD) and former chief economist for the Bank for International Settlement. White is very worried about the global financial markets. Speaking in a report by the Telegraph he stated: All the market indicators right now look very similar to what we saw before the Lehman crisis, but the lesson has somehow been forgotten. Now I m not suggesting that you sell all your stocks and run for the hills, but I am strongly suggesting that you have a clear plan. You need a well-defined strategy to protect your portfolio when things do get ugly. Here are three hacks you can use to be sure your portfolio stands up against market volatility. How To Trick The Federal Reserve into Paying YOU Thanks to the three Federal Reserve rate hikes, you can now get paid a little bit to hold cash. Not much mind you, but even making 1% is a victory if the stock market falls by 20%, 30%, or more. The Federal Reserve raised interest rates three times in 2017 and is widely expected to increase rates up to three more times this year. One of the most important fixed-income benchmarks in the world is already shooting higher in anticipation of those rate increases. That s why investing in a floating bond ETF likeishares Floating Rate Bond ETF (FLOT). 2

3 FLOT seeks to track the investment results of an index composed of U.S. dollar-denominated, investment-grade floating rate bonds with remaining maturities between one month and five years, according to ishares. The three-month U.S. dollar London Interbank Offered Rate, or Libor, has breached 2% for the first time since The interest rates on many types of debt float based on the level of Libor. So higher Libor rates mean higher borrowing costs. With an estimated $100 trillion yes, $100 TRILLION of loans linked to the Libor, that s a major chunk of change. We re talking about everything from student loans to adjustable-mortgage rates to business loans, so both consumers and businesses are going to feel the pinch. That s good news if you own bonds with floating rates like FLOT. Look at ishares Floating Rate Bond ET (FLOT) as a safe parking spot. The L.B.H.D. Loophole to make Money When Everyone Else Loses L.B.D.H. refers to Low Beta, High Dividend stocks which do well in bear markets. Beta is a term that measures a stock s volatility compared to the rest of the market. A stock with a beta score of 1.0 has the same volatility as the general market. A beta score of less than 1.0 is a low beta stock and therefore less volatile. Higher than 1.0 and you re entering riskier territory. Most investors want high-beta stocks. Because high risk=higher reward. But that s not always the case, especially in a market that s topsy-turvy. In fact, a 2011 study by a Harvard finance professor found that Low-volatility and low-beta portfolios offered an enviable combination of high average returns and small drawdowns. This outcome runs counter to the fundamental principle that risk is compensated with higher expected return. 1 Pairing a low beta stock with a high yield dividend is not only a great way to protect your portfolio it s a winning strategy for making money when everyone else is losing their shirts. This Four-Letter Word Can Save You When Disaster Strikes If there s one thing that s certain, it s that market volatility is back and here to stay. In fact, since Jan. 26, the stock market peak, we ve had 16 trading sessions with gains or losses of over 1% for the S&P. That s twice as many 1% swings as all of last year. Since then, average daily price swings in stocks have been plus or minus 1.2%, compared with just plus or minus 0.3% in 2017! Trade friction leads to volatility and higher inflation, which are inevitably passed on to consumers. So what can you do to cope with trade uncertainties and protect yourself from more turbulent markets? Buy gold! Gold is a great hedge against volatility and inflation, as you can see in the chart below: 3

4 Beat Inflation with The Yellow Stuff 16% - 14% - Nominal Return Real, Inflation-Adjusted Return 12% - 10% - 8% - 6% - 4% - 2% - 0% - Low Inflation ( 3%) High Inflation (>3%) Source: Bloomberg, World Gold Council, U.S. Global Investors Based on data from the World Gold Council, annual returns for gold were about 15% per year on average when inflation was rising more than 3% year over year. That s a much higher return than when inflation is at or below 3%. During such periods gold gains were 5% annually on average. And guess what? Inflation today is hovering right at the 3% borderline. Growing trade tensions could easily push inflation higher still. If so, one investment to consider as a hedge against inflation and uncertainty is the SPDR Gold Shares ETF (GLD). It ll offer a steady stream of income and provide a nice buffer from the market turbulence we re currently seeing. My Favorite Strategy Here s my best advice to you Don t listen to Wall Street. Despite what the academics may tell you, buy-hold-and-pray is not an effective strategy. At a minimum, I suggest that you monitor some type of simple market timing system, such as a 200-day moving average, and use protective stop loss triggers. And if you have a little risk money that you can afford to lose, you should consider investing in a few put options that will dramatically increase in value if the stock market falls. Investors are too complacent, confident that the stock market is still headed higher making put options dirt cheap. For example, you can buy a one month put option on the S&P 500 with the equivalent of a 10% deductible for just $250 a contract. What I mean by a 10% deductible is that these options won t start to pay off until the S&P 500 declines by 10%, but once it does, your $250 will go up by roughly 100% for every 1% that the stock market falls. 4

5 If the S&P 500 drops by 20%, every $250 invested could turn into as much as $2,500. If the stock market doesn t fall, you would only lose your initial $250 investment. To growing your income, M. Burnick Mike Burnick Citation:. 1 The Greatest Anomaly in Finance: Low-Beta Stocks Outperform Copyright by Seven Figure Publishing a division of Agora Financial, LLC. 808 St. Paul Street, Baltimore, MD All rights reserved. No part of this report may be reproduced by any means or for any reason without the consent of the publisher. The information contained herein is obtained from sources believed to be reliable; however, its accuracy cannot be guaranteed. 5