It Is Not Too Late to Crash-Proof Your Portfolio for August and the Rest of 2014

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The end of July turned out to be ugly for equity investors, and August started off on the wrong foot as well. On the July 31 drop of 317 on the DJIA, all 30 of the Dow components dropped. While 300 points sounds alarming, it is just a drop of almost 1.9%. As of August 1, the DJIA was slightly negative on the year.

Another negative was that July was only the second down month of the market so far in 2014. Now the bearish market pundits can finally come out of the woodwork again to warn of a crash or correction. There is at least somewhat good news — you can crash-proof your portfolio, even while staying in the markets.

A concern for Friday was that markets were indicated lower ahead of the key unemployment and payrolls report. The fear now is that stimulus may end sooner, and even that rate hikes could come sooner than expected earlier this week. The 4% gross domestic product (GDP) report for the second quarter was far better than expected, and that magical revision from the first quarter (and prior periods) improved the -2.9% GDP figure to a more acceptable -2.1%.

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Many investors have different meanings for a crash. Maybe it is a one-day crash event, or maybe it is a full-blown crash in a series of sweeping sell-offs like those from 2008 to 2009. There was just a warning this week that August has been the worst month for stocks during each year on average going back to 1988.

Again, stocks remain up for the year. Also keep in mind that there were 30% total returns in the S&P 500 in 2013, if you include dividends. So, did you protect your portfolio from the next stock market crash? If not, don’t worry. Here’s how.

It was after the “sell in May and go away” threat was there and the start of summer that we issued a report on 11 ways to avoid a stock market crash. What is interesting here is that this crash-proofing of your portfolio was while you stay in the broader market.

We have the full report here in more detail, but here are some of the strategies covered for investors:

  1. Take some profits off the table — some, not all.
  2. Buy put options.
  3. Write call options for income or to lower your costs basis.
  4. Institute a costless collar strategy.
  5. Don’t forget about inverse exchange traded funds (ETFs) and short selling ETF strategies.
  6. Figure out which stocks you might want to sell short.
  7. Go for defensive dividends over growth.
  8. Focus on companies with huge stock buyback plans.
  9. Set limit orders, limiting your downside or locking in upside.
  10. Rely on a very conservative planner who has seen crashes many times.
  11. Hold your nose and hide out in short-term or intermediate-term Treasury notes.

Here are the full details on 11 strategies to protect yourself from a stock market crash — while you still get to stay in the markets.

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