Protect Your Wealth in a Choppy Market

Protect Your Wealth in a Choppy Market

Protect Your Wealth in a Choppy Market

$SPY

Lots of retail participants have big, even huge gainers in this, the longest Bull run in history, and it is essential to know how to protect and grow that wealth like a professional does.

That is why investors should be doing a few things to protect and grow their wealth during pullbacks and corrections

  1. Investors should consider cash holdings. While the interest rates are not exciting, some cash on the sidelines is always a good policy even if you think cash is boring.
  2. Next best thing is to learn about how to sell covered calls on core holdings, particularly after those holdings have seen a big rally. Doing so means you are willing to book profits at the call option strike price, and thus lock in profits. But, here is where the learning comes in if you go slightly out-of-the-money after a big rally your shares, chances are you can end up keeping them. Whatever causes a stock to rally in the short run typically only lasts for a few weeks or months. By selling a call option a few months out, you’re betting that the recent rally will fade, and shares will get comfortable in a new and higher trading range. In that way, you generate more cash from your holdings. Depending on your initial entry price, doing so can easily provide a position with an extra 8-10% per year, more if you want to get particularly aggressive. Covered calls provide the opportunity to ensure that existing positions offer the best returns for the money.
  3. In a choppy market, rather than think defensively, think offensively and prepare for better days ahead, as they always come. So, create a watch list of companies you want to own for the long haul, and a price you are willing to start buying them at. OK, you may think that when stocks are falling, stepping in to buy shares is NutZ. But that is short-term thinking, not long-term potential. It is important that when setting up the watch list, it is a good practice to look at existing holdings. Many of them will become better buys in a market consolidation and adding to shares you already own allows you to lower your cost basis and make it easier to get back to profitability following that action.

So, if choppy markets concern or worry you, raise enough cash to sleep well, and allay any fear or stress. You can sell of some positions to do so, or employ cash-generating strategies like covered call writing. But, remember the most important thing you can do, even when markets look ugly, is search for new opportunities they are always there, but you have do look for them.

The above is a simple, it requires discipline and a clear understanding of how financial markets work. Professionals act when fear is running rampant and and retail participants emotions are frayed, so you may not like it in the short-term, but your future wealth is at stake if you do not know how to play, as it is your money and so your responsibility.

Have a terrific weekend.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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