OK, we all know that stocks are hitting new multi-year highs every day. Commodities prices are soaring, energy stocks are vaulting higher along with the price of crude oil, and international stocks continue their stellar multiyear run.
So you might be asking yourselves why now, of all times, am I talking about preparing for the next bear market?
Well, my friends, it is precisely when things are going so well that you want to prep yourself for the worst. You see, record highs and easy money breed complacency, and complacency when it comes to your money can get you into big, big trouble.
One analogy that comes to mind here is the idea of a fire drill. Think about it, should you wait for a fire to actually start blazing before you figure out where the extinguishers are or where the emergency exits are located? Of course not, so why would you wait until the market is burning down to determine your exit strategy and what you will do when times — as they inevitably do — turn tough for stocks?
Protecting your wealth isn’t that difficult, but it does require having a game plan. In sticking with our fire drill analogy, you have to know before the building starts burning where the exits are, where you need to go to seek shelter from the inferno, and when it is safe to go back into the smoldering structure.
When it comes to stocks, you have to know when to exit the burning building as well. That means knowing when to sell stocks before you get caught up in the firestorm.
Here are a few of my "Fabian Fire Drill" tips that will help you know what to do, and when to sell stocks so that you can avoid those financial forest fires.
Now, I’ll bet that just about every Making Money Alert reader has some exposure to the market, and many of you have multiple accounts such as a 401k, IRA, life insurance, annuity or taxable account. But are you aware, precisely, of everything you actually own in those accounts?
Step 1: Identify Every Asset In Your Portfolio
The first step in preparing to avoid the next bear market is to know exactly what you own, and what kinds of funds and/or stocks you are exposed to. Until you are completely familiar with the assets you own, you can’t expect to know when the best time to sell might be.
Step 2: Organize Your Assets By Market Segment
If you’ve been following my advice lately, you know that there are four areas of the market that I really like right now. They are: gold, energy stocks, international stocks and domestic growth stocks. Now, each of these sectors has their own characteristics, and consequently the exit strategy for each is a bit different as well. One way to understand when the best time to exit a given sector is by knowing how to measure its performance. That brings us to step 3.
Step 3: Know Your Benchmarks
You have to monitor the appropriate benchmarks in order to know where a given market sector’s performance is in relation to its historical performance. Another way of saying this is you have to know what to look for when determining if it is time to get out of a given market segment, or if it is still safe to remain in that sector.
Of course, my Successful Investing subscribers are already intimately familiar with the way that we monitor each and every position we take. We do this either with our proprietary trend-following strategy — a strategy that has helped us beat the market for the past three decades — or we do it by sticking to a strict preset stop-loss point. In fact, we never enter a position without knowing when we will sell that position. When you are a Successful Investing subscriber, we do all of the heavy lifting for you when it comes knowing when to sell stocks.
If you are not a subscriber to Successful Investing, you can still monitor your investments using my favorite market tools, exchange traded funds (ETFs). For example, if you are invested in gold, you can monitor the performance of gold by looking at the streetTRACKS Gold Shares (GLD). By critically examining both the price and moving average of this ETF, you will have a great sense of where gold is, and where it may be heading.
If you are invested in energy, your ETF benchmark is the Energy Select Sector SPDR (XLE). Want to monitor international stocks? No problem, just look at the iShares MSCI EAFA Index (EFA). Finally, when monitoring stocks at large, why not use the iShares Dow Jones US Total Market Index (IYY)? This ETF will keep you on top of all of the trends in the domestic stock market.
Step 4: Do A Weekly Check-Up On Your Benchmarks
Once you’ve identified your benchmarks, it is not enough to simply glance at them every now and then. You’ve got to make it a point to check them out at least once a week, and even more in times of brisk market movement. Learning to identify the ebb and flow of the tides in a given market sector is possible, but only if you are vigilantly and consistently monitoring the action.
If you would like to find out how we are preparing Successful Investing subscribers for the next bear market while simultaneously making big profits from the current bull run, please click on the link below: