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How to Help Your Portfolio in the Next Market Crash

Posted By Barry Ritholtz On April 7, 2013 @ 10:00 am In Markets | Comments Disabled

 
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My latest Sunday Washington Post Business column is out, titled, As stocks mark new all-time highs, many investors are left behind [2]. This morning, we look at four factors: Valuation, Market internals, Global weakness  and Overbought markets. we also consider if these mean we might be at a market top.

Perhaps the most important part of article is the four strategies you can employ to make money during the next market crash versus the buy-and-hold strategy so many investors are saddled with.

Here’s an excerpt from the column:

Imagine this: The Dow Jones industrial average travels 15,000 points, and you have nothing to show for it. Same for the S&P 500-stock index, a full 1,800 points, and the net gains are zero, nada, zilch.

How did this happen? If you employ a buy-and-hold strategy, the round trip in the equity markets is simple math. Dow 14,000 down to 6,500 and back again equals about 15,000 points. Any stocks bought in late 2007 are just now, after six long and tumultuous years, returning to break even, even as stocks mark new all-time highs.

What does this mean for investors? Let’s look at alternative investing approaches, including what you could do to avoid this. A few strategies you can easily deploy will make the next round trip — and, yes, there will be one — much more profitable.”

What are the four strategies?

They are:

1. Dollar cost averaging

2. Portfolio rebalancing

3. Asset allocation tilt

4. Market timing

The first two strategies are automatic; anyone can — and should — do them. The third strategy is a little more challenging; it requires that you pre-determine factors that will lead you to shifting your allocations. If you can do this in advance and stick with a plan, its worth the effort.

About the fourth one? I described it thusly:

“Market tops are long-drawn-out processes; bottoms are emotional, panic-filled events. Very, very few people can call either on a timely basis. You are not one of those people.”

Full article at the link below . . .

 

 

Source:
As stocks mark new all-time highs, many investors are left behind [2]
Barry Ritholtz
Washington Post, April 7 2012  
http://www.washingtonpost.com/business/as-stocks-mark-new-all-time-highs-many-investors-are-left-behind/2013/04/04/5233f444-9d56-11e2-a941-a19bce7af755_story.html


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URL to article: http://www.ritholtz.com/blog/2013/04/portfolio-help-next-crash/

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[1] Image: http://www.ritholtz.com/blogwww.washingtonpost.com/barry-ritholtz/2011/03/31/AFWBwIBC_viewAll.html

[2] As stocks mark new all-time highs, many investors are left behind: http://www.washingtonpost.com/business/as-stocks-mark-new-all-time-highs-many-investors-are-left-behind/2013/04/04/5233f444-9d56-11e2-a941-a19bce7af755_story.html

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