I live on the Gulf Coast of Florida, right in the path of Hurricane Hermine. As I know well, the biggest risk of a hurricane isn’t actually the winds… it’s the flooding. So I’ve spent most of my week draining the pool, boarding up the house and patio, and of course, making sure my family’s got enough food and water to ride out the storm.
Even before it hits, this storm is already historic because we haven’t had a hurricane make landfall in Florida for 11 years now. In fact, some of my own neighbors don’t even know what it’s like to experience a hurricane and only know what they see on the news.
But there’s an even worse storm brewing… one that will affect all of us.
And the only way to beat it is to get prepared now.
Three Ways to Protect Yourself from the Next Financial Storm
The markets have been trading sideways for weeks now. And yesterday was no exception, with U.S. stocks closing mostly flat. The DJIA only closed about 15 points higher (after dropping over 100 points earlier), the NASDAQ only gained 0.3%, and the S&P 500 fell by less than one point.
But economists’ concerns about this calm in the market continue to grow along with their unease about the state of the global economy – and for good reasons.
China, for starters, is the world’s second-largest economy. But it’s been experiencing a major slowdown of growth. In the first three months of the year alone, its growth dropped down to 6.7%, the lowest in seven years. Now, China is struggling to deal with the highest level of bad loans offered by Chinese banks since 2004.
If it can’t recover, there’s a very high risk of China dragging the global economy into a recession. And the U.S. stock market could take a huge hit.
We’ve also got to keep an eye on the U.K. Although Britain voted to leave the European Union (E.U.), there’s still a formal, two-year process, called Article 50, which must be completed before that happens. But there’s now talk among government officials that Article 50 may be delayed until late 2019.
And even though U.K. has largely recovered from the financial turmoil caused post-Brexit, questions still remain about whether or not their economy – and the global markets – can handle over a three-year departure from the E.U. Even the European Securities Markets Authority stated, “Market, liquidity, and contagion risks may rise going forward as political and event risks have intensified, and the macroeconomic environment may deteriorate.”
And in the U.S., uncertainties continue to rise over when exactly the Fed will raise interest rates and also how the political climate could change pending the election results in 66 days. We’ve also got another labor report to watch for. And depending on the results, we could be looking at an increase in volatility.
Even my own proprietary tools indicate a change in tides could be coming soon…
Now the best time to protect yourself in the face of a financial storm is when the markets are calm. So here are three ways you can do it:
1. Sell off a portion of your profitable positions as well as your unprofitable positions (for tax loss selling) to create a mound of cash for future buying opportunities.
2. Buy put options or sell covered calls (or both) to protect long stock positions that you don’t want to sell off.
3. Rebalance your portfolio out of growth positions and into defensive ones, such as utilities and dividend stocks.
The best time to be prepared for anything in the stock market is when nothing is happening.
Have a fantastic Labor Day weekend – and stay dry!