Three Market Hacks to Save Your Portfolio
Risk management is never dumb.
In fact, it’s more important today than at any time since the 2008–09 Financial Crisis.
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.
But you do 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
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 ETFs like the iShares Floating Rate Bond ETF (FLOT) is a great way to earn on the down days.
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, breached 2% for the first time since 2008, earlier this year.
The interest rates on many types of debt float based on the level of Libor. So higher Libor rates mean higher borrowing costs.
And that’s good news if you own bonds with floating rates — like FLOT.
Look at iShares Floating Rate Bond ETF (FLOT) as a safe parking spot for your money during volatile times.
The L.B.H.D. Loophole To Win 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.
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?
Gold is a great hedge against volatility and inflation, as you can see in the chart below:
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.
One investment you may want 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.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch