How To Protect Your Investments And Still Make Money

Unless you’re living in a dungeon you know what the market it looking like right now. I’m sure that all of you are diversified in your investments. If you’re not diversified then you’re getting smoked in a very bad way right now. Unless of course you own lots of index put options.

I was talking with some novice investors yesterday and I couldn’t believe that they didn’t realize that you can play the downside of the market just as easily as you can play the upside. I guess I just take it for granted that not everyone has the time and energy to follow the markets as closely as some of us do. With some simple technical strategies you could make a very good living off of trading only the indexes with a solid exit strategy, but I’ll save that for another article or our newsletter.

I didn’t have much time to fully educate them on the various nuances of investing but I did give them this advice. If they were nervous and wanted to stay in the market AND liked the companies that they had, then they should buy some protective puts against their stock positions. The online brokers that I deal with all allow you to do this because you’re not buying naked calls/puts but just hedging a position that you already own. This helps to protect your position in the stock while making up for some of the losses to the downside (Selling calls achieves a similar affect). I also informed them that they could buy puts on the S&P (SPY), Dow Jones (DIA) and the NASDAQ (QQQQ). Also with the NASDAQ I like to protect myself by buying the QID’s which, in a nutshell, makes money when the NASDAQ dives.

Now these are the plays I do but looking at the bewildered looks on their faces and noticing their anxiety on the markets I told them to look into Municipal Bonds which are very attractive (I wrote an article on that subject a few weeks ago). Of course Muni’s are not the only course of action; you could also look into other high rate bonds like Treasury notes/bonds but personally I like Muni’s right now.

I almost exclusively invest in stock derivatives but if you’re not comfortable doing so then there are other investment vehicles that you can take advantage of in tough times such as these. At the very least I informed my captive audience to look into options plays and paper trade them (it cost no money and you can see the consequences of your actions).