Hermine’s Not the Only Hurricane Gunning for Your Portfolio – Here’s How to Protect Yourself

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.

And remember…

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!


8 Responses to “Hermine’s Not the Only Hurricane Gunning for Your Portfolio – Here’s How to Protect Yourself”

  1. Johnathan Turrietta

    Thanks for the heads up – needed to clean up my losers anyway – sold my profitable stock and good news – I realized a net gain of 5%. Now that the portfolio has 65 percent cash I will focus on dividend stocks (don’t know to much about utilities) – Actually thinking about stock in the US defense contractor space and possible some mining gold or silver mining stocks? – hopefully that will weather the storm.

  2. Hi Tom, I admire your having a residence on the gulf coast of FJ. We stayed in a condo owned by a co-worker of my wife’s. She only wanted the maintenance fee for the rental. We agreed. The unit was just about in the middle of Destin Beech. We LOVED staying there. We invited ourselfs to the ground breaking ceremony for the Pelican Beech Resort (right next door to where we were staying!) We’ve since stayed a few more times at the Pelican Beech Resort. It’s a beautiful place. I was going to ask you about item #2 on your list but since I don’t have any long positions I guess I don’t need the info. During our Flordia travels we bought a vacant lot in Santa Rosa Beech in the Pines of Blue Mountain Beech (back in 1995) We still haven’t built anything on it yet. Maybe someday? Oh, on the subject of a pending hurricane, I always said if we build just across hwy. 30 between San Destine and Panama City, when I hear the word hurricane I would toss a pre-packed travel bag in the car and head for Birmingham Alabama!!! Good luck with the storm. Keep your powder dry!

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