How To Protect Your Wealth From A Market Crash
Chinese market’s are crashing, interest rate hikes in the US will ruin the market, and Greece is going to bankrupt Europe. If you pay attention to financial news these might be some of the doomsday scenarios you have read about. If you think the markets are going to crash soon there are plays you can make to protect your investments. One option is to buy an “alt” fund which uses complex hedge fund strategies are a market neutral fund where a portfolio manage guesses which stocks are going to go up or down in the bear market. The problem is most of these strategies don’t work versus staying diversified.
See which strategy you should use to protect your hard earned money.
Relatively few alt funds have even a five-year record, and that makes it tough to evaluate their efficacy—especially in a bear. Schwab Hedged Equity (SWHEX) is one of the few such funds with a long record, having beaten most of its peers over the past one, three, and five years. In the 2008 crash, it lost 17 percentage points less than the S&P 500. But the following year the fund trailed the market by 11 points, and over the past five years it has lagged by eight points annually.
There are probably hundreds of “alts” for sale on the market and if only two have a proven track record is not a good indication that this strategy works. Having a 60% stock and 40% bond portfolio is the best way to protect your portfolio from market declines. If you think a bear market is approaching you may want to balance your portfolio to 60/40. I moved my allocations around recently to be less aggressive and preserve some wealth by purchasing bonds.
Learn why the 60/40 strategy is safer and cheaper than paying fees.
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About Shaun Archer Tatum Shaun works in corporate finance in New York City. He has done financial consulting for several start-ups and has worked at several Fortune 500 companies. He has contributed several finance/investing articles on Seeking Alpha which have been published on Yahoo! Finance.