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5 easy ways to protect your money from the Fed’s taper tantrum

Aug 31, 2021

Good morning!

Futures are down, commodities are in retreat, and Treasury yields are falling anyway in overnight trading because the latest Fed minutes show that the Fed is preparing to taper this year.

I am not one to say that I told you so... but in this case I did.

I’ve said for months on national media, in One Bar Ahead™, and right here in the Morning! Five with Fitz that the Fed would likely taper this year, not in 2022 like nearly everybody else thought and the mainstream media reported.

I warned again earlier this week very specifically that the “Fed is the real bogeyman” during an interview on Yahoo! Finance, not weak retail sales.

Here’s my playbook and a special, super-focused 5 with Fitz.

5 easy ways any investor can protect their money from the Fed

1 - Raise protective stops; don’t guess about what happens next

The key here is not to sell anything unless the markets force your hand. The Fed could offer clarifying remarks at any time causing a head-spinning upside reversal.

You don’t want to guess because the markets will tell you everything you need to know.

2 - Take profits on stocks where you have too much exposure

Anything up over 100% should be a no-brainer. Sell half to recover your cost and let the rest ride for “free” in a tactic I call the “Free Trade” for obvious reasons. If you don’t have any 100% winners, consider pairing back position size to the point where you feel comfortable. There’s no wrong way to do this.

3 - Hedge your portfolio using inverse funds

Consider choices like the ProShares Short S&P 500 ETF (SH) and the Rydex Inverse S&P 500 Strategy Fund (RYURX) if you’re into mutual funds. Both are 1:1, meaning they are designed to track $1 higher for every $1 lower the S&P 500 falls. Studies show that having a 2-5% allocation can really help take the sting out of any correction while keeping you “in to win.”

Personally, I don’t like getting bounced out of investments I’d otherwise hold, so I tend to add to these kinds of inverse positions rather than sell out of stocks I’d otherwise hold till the end of time. Examples include Apple, Microsoft and Palantir to name a few. Taper tantrum or not, they’re growing.

4 - Use any dip to your advantage by purchasing the highest-quality “low-beta" stocks you can find

History shows low-beta stocks fall less, can be more stable and often bounce back faster than their higher “beta” cousins. The goal is to assemble a portfolio that’s considerably less volatile than the broader markets. Many pay healthy dividends, incidentally; so it is possible to generate some juicy income even if the markets get hammered.

5 - Go shopping for stocks you missed on the last run up or companies you want to add to

Dips – no matter how they start or why – are a great chance to buy shares in companies you missed or where you want to add to shares. My favourite tactics on days like this include using LowBall Orders and Selling Cash-Secured Puts.

‍‍At the end of the day, dips, down markets, corrections - whatever you want to call ‘em - are something to be harnessed not feared.

We’ve done our homework and, if you’ve been following along with me for any length of time whatsoever, you’ve known this was coming.

Take a deep breath.

Chaos is always an opportunity in disguise if you know what to look for.

It’s not fun, it’s scary, it’s hard … I get that. Corrections always are but that’s exactly why you want to focus on playing offence.

The biggest and best profits almost always come to those who buy at times of maximum pessimism, a point one of my mentors used to make frequently. The late Sir John Templeton was one of the best at doing this and what I learned from him has paid off over the years when it comes to situations like the one we face today.

You got this – I promise!

I will be with you every step of the way.

Now, as always, let’s get out there and MAKE it a great day.



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