How to Prepare for a Stock Market Pullback

Prepare for a Stock Market Pullback
Money Morning’s Chief Investment Strategist Keith Fitz-Gerald has a strategy that will protect your investments should a steep stock market decline occur. It will allow you to capture any upside growth in the market.

By implementing tight trailing stops, and structuring your portfolio with varying degrees of risk, you can make the best of a bad situation.

Here’s how:

• Go Glocal: Fitz-Gerald loves “glocal” companies, a portfolio must-have for investors. Fitz-Gerald says that large, mega-cap stocks will remain the most stable, defensive and opportunistic choices. These are companies like McDonald’s Corp. (NSYE: MCD), The Procter and Gamble Co. (NYSE: PG), General Electric Co. (NYSE: GE), ABB Ltd. (NYSE ADR: ABB) and Raytheon Co. (NYSE: RTN). All of these are global brands with the experience needed to manage real growth despite challenging economic conditions around the world.

• Keep an Eye on Gold: Fitz-Gerald says that during President Obama’s second term the need to preserve your value will only increase, and investors will flock towards gold. He warns that gold could pull back in the short term as investors sell to take profits, or traders who have used it to collateralize other investments will sell it to raise cash. This will create a buying opportunity for gold, which will not only protect your money, but enable it to grow in value.

• Hedge Bets with an Inverse Fund: Inverse funds that offset market volatility are a viable alternative to simply hanging on and hoping for the best. Not only can you protect the value of your income and dividends by smoothing out the volatility, but specialized choices like the Rydex Inverse S&P 500 Fund (RYURX) can help investors stay in the game and generate gains that take the sting out of otherwise problematic losses.

• Watch for a Drop in Defense Stocks: If Congress doesn’t take any action, the fiscal cliff will result in dramatic spending cuts to defense companies. This will surely cause a drop in defense stocks – meaning another buying opportunity. As the world continues to grow, becoming more complex, defense companies will continue to prosper. And with the uncertainty in the Middle East and China escalating, defense companies will quickly recover from any fiscal cliff fallout.

For even more investing advice that will guide you through difficult economic times, check out Private Briefing. This service provides you not only with Keith-Fitz Gerald’s investing wisdom, but gives you access to all of Money Morning‘s financial experts and their recommendations.

Best of all, you’ll learn investing tricks of the trade as you profit. For more info, click here.

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