Warren Buffet, arguably the world’s most well to do financial investor, says it best when giving advice to protect your accounts. “Never lose money.” As simple as it sounds, the truth is, that the economic market is continually changing and no investment plan is 100% fool proof. Because of the uncertainty of life in general, it is always wise to be prepared for the unexpected.
The key to a long term success rate in capital is to preserve it. This doesn’t necessarily mean to sell all your stocks and bonds in a rush once the market starts to fall through. With timely and strategic planning, you will be on your way to a well planned financial future in no time.
#1) Diversify Your Portfolio
Creating a diversified portfolio, where assets are allocated within more than one market will keep your money more protected in an unstable market. Just in case one area of your investments fail, you will have other investments to fall back on, which a good reason for a this sort of protection. Basically, you shouldn’t put all your eggs in one basket, in case that basket gets crushed. The same could be said for your money.
Reduction of unsystematic risk, the risk that comes with investing in one business is one of the key features of diversifying where your money goes.
#2) Think about Non-Correlating Assets
Obtaining a portfolio that has as many as 30 different stocks, can eliminate any unsystematic risks. However, systematic risks, a risk that is spread over general markets, can happen at even the tiniest points. To better protect yourself, create non-correlating assets, in which bonds, commodities, currencies and the like, are joined in one big stock pile, lessening your chances of losing anything in a volatile market.
#3) Invest in Leap Puts
A put is a bet that the underlying stock option will go down in price. This gives you the option to sell your stocks at a certain price in the future, at a specific time.
Being the most common option, a leap put, is a way to make sure that your unrealized options do not fall out of place, so they do not become losses. This is not a way to make money, however, but more of an option to keep it safe.
Index leaps work the same way, only they are used for protecting your entire portfolio rather than one stock option at a time.
#4) Dividends that Payoff
Dividends are the least common choice in terms of making sure your investments are well guarded. Acquiring stock in a company that pays dividends is probably the most successful way in ensuring a return on what you put in. As the market declines, the dividends that you depend on will be a nice cushion for those who are adverse to high risks.
As well as acting as a barrier from a failing market, dividends are also a great way to arm yourself against inflation.
#5) Protect Your Investments with Principal Protection
Principal Protection is a good choice for those worried about their principles. In this case, this kind of investment is necessary. Principals are similar to bonds with the assumption that you keep your investments until maturity.
When purchasing principal protection notes, it is good to make sure that the bank, handing out the principal is strong enough, as well as the notes and fees when buying.
Take notes and protect you investments from failing you if and whenever the economy decides to go the path of a downward spiral. Ensuring your money will protect your livelihood today and well into to the future.
Tell us what you think! Do any of these options sound viable to you? Have you already prepared yourself for a volatile market? If so, tell us how in the comments below.