Most people have never experienced a stock market crash or hurricane, other than seeing the news reports about the aftermath. When it comes to hurricanes, unless you’ve spent a night wondering if your house is going to be blown away, you just don’t understand!
Those of us in Charleston, SC who experienced “Hurricane Hugo” decades ago are experienced and we “get it”. We usually stock various emergency supplies. We may have to go weeks without electricity and live off our supplies if the grocery stores have been destroyed!
Similarly, few people “get it” when considering the effects of a major stock market crash. Like hurricanes, stock market crashes are devastating. Perhaps more importantly, again like hurricanes, there are frequent “close calls” that cause everyone to “prepare”, but it doesn’t happen.
People become numb and start ignoring warnings. Some even wait for the opportunity to brag to their friends: “See, I told you nothing was going to happen. I told you you were getting upset over nothing.
Coastal dwellers are hoping there won’t be a hurricane, but those of us who “get it” stand ready for a direct hit! Likewise, the cautious stock trader hopes that there will be no stock market crash, but still prepares for the possibility of it happening. It’s not paranoia. It pays to be prepared!
As we begin the 2012 hurricane season in Charleston, those of us who “get it” are taking the time to review and update our homeowners insurance policy.
Is your stock portfolio insured?
Cash is the best insurance for every wallet immediate needs. Money is a position, too. In this case, cash can be useful as a tool to offset losses by taking advantage of buying opportunities when stocks have fallen. You can buy more shares than you own while prices are temporarily depressed. You can add new positions (and make explosive profits that offset losses) by buying stocks of companies that are likely to rebound quickly. When fundamental and technical factors point to a stock market crash, it’s a good idea to gradually take profits where you can and build your cash flow.
Gold is the best insurance for every wallet ultimate needs. In addition to any positions I may hold in gold funds and gold mining companies, I keep between 5-10% of the portfolio value in actual gold bullion. If there is a world war; or the Internet becomes disabled; or one of many other conceivable disasters occurs; all stock trading could be halted by regulators. Gold ensures your ability to survive, hopefully until trading resumes. If things are so bad that your stocks have lost all value, then the price of your gold should skyrocket, perhaps offsetting most of the lost value of your stocks.
Hurricanes and stock market crashes have a lot in common. Although both can be devastating, both can be survived. In the event of a stock market crash, it is possible to come out better on the other side. Not only can you survive it, but you can actually thrive on the spectacular price volatility. However, you need to take the right steps before the crash!
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