ATTENTION: I Have an Important Market Announcement
I’ve got some big news to share today.
It’s about my view on the future of our bull market.
I’m changing it.
But before you go selling all your investments. Just know that this is no time to panic, but merely a time to be cautious.
In addition, I’ll also be giving you one simple strategy to protect yourself during this uncertain time. But first, let me explain the situation the way I know best — with a story about my kids.
My Advice to You (And My Kids): Make Small Adjustments
Have you ever taught someone how to drive?
I myself have been through the process three times. (And that’s about to be four as one of my daughters can’t help but remind me she’ll be old enough this summer.)
Talk about a tense experience!
But ironically, sometimes the advice I give to my kids as they’re getting comfortable behind the wheel is very similar to the advice I give to investors in this tense market environment.
One of the most important driving lessons I’ve given my kids is to “make small adjustments.”
In other words, if you feel like the car is drifting too far towards the right side of the lane, then steer just the slightest bit back toward the left. Same thing for accelerating or braking. Start with small changes to the car and then add more gas or break if you really need it.
This helps to keep the kids from over-correcting and putting themselves in a dangerous position.
And for us as investors, the same concept holds true!
When you make adjustments to your investment account, it pays to make small, incremental moves instead of rushing into or out of the market or a particular stock. And this is especially true today with a lot of cross currents and uncertainty in the market.
But just like I don’t want my daughter to slam on the brakes if I tell her to slow down, I don’t want you to bail out of all of your investments if we start talking about some of the risks in today’s market.
Instead, I want to give you some tools to gradually start playing a little more defense with your investments, so that you’re protected if the market pulls back a bit more, and you still have great investments in your account that will do well if the market rebounds from here and the economy continues to expand (as it has done so reliably now for years).
So What Should You Do???
There’s one protection play that I think you should consider today to help offset any pullback in the market.
I’m suggesting buying some put option contracts on the overall stock market.
To give you a quick tutorial, put contracts increase in value when stocks trade lower. So if you buy a put contract, you’ll have an opportunity to make money if the underlying stock falls.
Now here’s the thing. I’m looking at this as sort of an insurance policy.
We don’t expect to use it. In fact, we hope to lose money on it. (Just like I want my kids to drive safely, so I hope that the insurance policy that I pay for never pays off because of an accident.) But it’s still a good idea to have some protection.
Right now, I recommend buying puts on the overall market, which you can do by buying puts on the DIA (which covers the Dow Jones Industrial Average), SPY (which covers the S&P 500), QQQ (the top 100 names in the Nasdaq), or even on IWM (which covers U.S. small cap names).
You can pick which one makes the most sense for you based on which market average most closely represents the investments you’re holding.
One thing to keep in mind is that by adding protection to your investments in this way, you can be more confident in the investments that you do make in the market because you’ll know that you’re protected if they pull back.
So adding this protection actually lets us be more proactive to find great opportunities to buy stocks of great companies, taking advantage of the discount prices the market is giving us.
That’s all for me today. Stick with The Daily Edge as we continue to update this situation because as always, if the facts change, so too should the investments in your portfolio!
Here’s to growing and protecting your wealth!