The Must-Have Portfolio For This Crisis
Nov 12th, 2008 | By Keith Fitz-Gerald | Category: Stock Market InvestingKeith Fitz-Gerald gives us a simple-yet-effective portfolio strategy for the current market environment. He says two essential components of any portfolio are dividind-paying stocks and specialized inverse etf funds.
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A properly structured and globally diversified portfolio using the 50-40-10 allocation model (50% “base-builder” foundation investments, 40% global growth and income plays and 10% “rocket rider” speculative investments that will perform well in a recovery) we recommend in The Money Map Report – our affiliated monthly investing newsletter – will prove to be an investor’s best friend. And the reasons for that are as simple as they are compelling:
- First, a properly structured portfolio has built in safety brakes that keep us from making overly risky decisions.
- And second, while this allocation model was constructed to minimize our downside in markets such as the one we’re navigating right now, it also positions us to benefit when the rebound eventually gets under way.
During the past year, we’ve repeatedly urged our readers to make sure two other elements are part of their portfolio: Dividend-paying stocks and specialized “inverse funds” that gain when the markets decline.
While dividends are important in any market, they’re downright crucial now because they add to returns during market rallies and help offset losses during market declines. And our commitment to inverse funds was rewarded during the whipsaw month of October: During a month in which the Standard & Poor’s 500 Index lost 16.8%, the Nasdaq Composite Index shed 16.3% and the Dow Jones Industrial Average dropped 13.9%, all 10 of the best-performing exchange-traded funds (ETFs) were inverse funds, which boasted one-month returns ranging from 36.4% to 66.6%, Thestreet.com reported last week.
Now those are admittedly highly remarkable returns – and clearly aren’t the norm. But it does demonstrate the point we’ve been making: It pays to protect y our downside even as you position yourself for gains. And not only do such investments as inverse funds hedge our downside, they smooth out our overall portfolio volatility and help calm roiled waters.
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Keith Fitz-Gerald is a Contributing Editor to Money Morning, as well as Investment Director of the Money Map Report and editor of the New China Trader. He is also a seasoned market analyst known for his accuracy, perspective and insight. He is also a former professional trader and licensed CTA advising institutions and qualified individuals, and he specializes in non-directional trading.
