The Three Safest Places to Park Your Money in a Bear Market

On Monday, the Dow closed for its longest losing streak since 2011. And as of the moment I’m writing, it continues to trade lower.

Of course, the media heads have used this to pump fear into investors that a major bear market is coming – and soon.

I don’t agree (I’ll tell you why in a minute).

But knowing what to do with your money whether the bulls or the bears are in town is the best (and easiest) way to fatten your portfolio in any environment…

And these are the three safest places for your cash when the markets fall.

Q: What’s your take of the recent market pullback? Is this the beginning of the correction that everyone’s been talking about?

After the decision to pull the health care vote on Friday, I anticipated an overcorrection in the markets on Monday and a rebound after. And from everything I’ve seen, that’s exactly what’s happening. The bond market is starting to sell out, money is moving back into equities, and gold is going down (which is good in the sense that it’s where people pour their money when fearing a market downturn). We’re also seeing interest shift away from foreign currencies and back to the U.S. dollar – which is a positive sign.

Q: What would you say are the “safest” places to invest when the market falls?

There are three that have the best negative correlation to the markets, meaning they move in the opposite direction: gold, Treasury bonds, and the U.S. dollar. In terms of exchange traded funds (ETFs), that means SPDR Gold Shares (GLD), iShares 20+ Year Treasury Bond (TLT), and PowerShares DB US Dollar Bullish ETF (UUP) are the ones you’d want to buy if and when you feel the markets are falling.

Q: I saw on the news that “consumer confidence” is at a 16-year high. But right after, they said that investors are uncertain about the markets right now. How does that make sense?

If we all knew where exactly where the markets were going, we’d all have pretty easy jobs right now. Keep in mind that the news networks’ primary concern is ratings. What you can do to gauge consumer confidence is to look around you and see how many people are out and about. Whenever I venture out, I see more and more signs of consumers feeling optimistic about the future – people are shopping more (online shopping really) and pouring more money into home improvements. I believe this trend will continue for the time being, which means stock market prices will climb. In fact, I believe we’ll be at all-time highs again soon, despite any bumps in the road before then.

Q: Are health care stocks good for your portfolio right now?

Health care stocks got a bounce from the no-vote on health care last week. The overall sector, tracked by Health Care Select Sector SPDR ETF (XLV), opened down, closed higher, and is traded at all-time highs earlier this week. So health care stocks could be a great boost to your portfolio right now.

Q: I’m new to options and can’t get clearance yet to trade spreads. But do you really need that clearance? Or can you just trade each leg of the spread separately?

When it comes to trading spreads, you really want to get the clearance to do so because you can participate in the whole trade, as one ticket order, and benefit from lower cost/risk and maximum profit potential. If you attempt to “leg” the spread (trade each option separately), remember that you’re actually placing two different trades – one of which would involve selling “naked” options, which is extremely risky. Buying the option would be the safer bet, but again, you’re placing a different trade, at a different cost, with different profit potential.

These were fantastic questions, so keep them coming. You can contact me in the Comments section, on Facebook, and on Twitter.

Talk to you soon…

Tom Gentile

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