Portfolio Protection Will Get You Through This Correction

The coronavirus outbreak has certainly inflicted short-term damage on stocks…

Since news of the outbreak began surfacing on January 7, major global indices are down between 12% and 21%.

Of course, this past week’s correction has been historic. The Dow dropped a record 2,013 points and the S&P 500 lost 7% on Monday – triggering the market’s circuit breaker. Trading paused for 15 minutes for the first time since 2008.

We understand it’s difficult being an investor in this kind of environment. But it’s exactly times like this where you must stay rational – and understand this will be temporary.

Look, the spread of the coronavirus is serious. Confirmed cases are rising and lives are being lost. And this will impact many areas…

For example, events are already being canceled. More people are working remote. Others are being quarantined. So naturally, consumer spending will decrease. And global GDP and corporate profits will take a hit, too.

But as Daily editor Teeka Tiwari says: It’ll all be temporary.

Ultimately, this sell-off will be a buying opportunity. However, it’s foolish to try to time the bottom.

In the meantime, you need a plan to protect your wealth in the short term. If your portfolio is wiped out in the interim, it won’t matter if the bull run continues.

So in today’s essay, I’ll tell you how we plan to weather this fear-induced crisis – and profit when it’s over…

Diversification Is Key

At our flagship Palm Beach Letter advisory, we’re prepared for anything the market throws our way. 

You see, we use a highly diversified asset allocation model and risk management to protect and grow our portfolio.

Various studies show that over 90% of a portfolio’s long-term returns are driven by asset allocation.

Unlike the 60/40 mix of stocks and bonds recommended by Wall Street, we diversify into eight asset classes: equities, fixed income, real estate, private markets, cryptos, precious metals, collectibles, and cash.

Since our newsletter’s inception on April 13, 2011, through December 31, 2019, our recommendations have averaged annual returns of 104.7%. For comparison, the S&P 500 has annualized returns of 13.2% over the same period.

So not only does it hand you better returns… greater diversification also results in lower risk and better protection for your money.

For example, from February 19 to March 9, the Russell 3000 dropped 19.4%. (It represents about 98% of the U.S. stock market.) Yet our PBL portfolio is down 14.6% over the same time frame.

And this doesn’t account for our alternative recommendations. We have several plays outside the stock market. If we factored them in, we’d only be down by about half as much as the index.

Now, the key to making asset allocation work is risk management. Always use sensible position-sizing and stop losses to protect your downside, where appropriate.

When it comes to position-sizing, Teeka’s simple rule of thumb is this: If an investment hits its stop, your maximum loss should be no more than 2.5–5% of your portfolio’s value.

Is the Bull Run Over?

As Teeka says, it’s urgent you understand we’re in a long-term, secular bull market.

And within each secular market, there are short-term moves in the opposite direction of the main trend. These are the cyclical markets, which tend to last nine to 18 months.

So don’t confuse what could be a temporary, sharp, panic-inducing drop with an end to the larger overall bull market.

Just look at the table below. It compares the past 10 corrections and crashes since 1987 with the coronavirus-related pullback we’re seeing now…

As you can see, the market rebounded each time. And except for the 1987 Black Monday crash and 2008 financial crisis, it recovered in less than three months.

In fact, during the last secular bull market of 1982–2000, we saw three drops of nearly 20% or more. And yet, within nine months, the market was back at new all-time highs.

This current bull market is 132 months old. And Teeka believes this epic, record-long run in stocks could last at least another 120 months.

So whether or not the coronavirus outbreak trips up this bull run… as long as you diversify your portfolio and stick to your risk-management guidelines, you’ll be set up to profit when it restarts.

Regards,

Grant Wasylik
Analyst, Palm Beach Daily

P.S. On Wednesday, March 18, at 8 p.m. ET, Teeka will board a private jet to the epicenter of a major phenomenon in crypto assets.

The tail number has been removed. Background checks on the flight crew have been completed. The jet has even been chartered under a corporate name.

And most importantly: the destination of Teeka’s jet is a complete mystery.

Why have these extreme precautions been taken?

To ensure the names of the “Final Five” coins to $5 million remain a secret until Teeka lands. And to learn how to get access to his new buy list, be sure to register your name right here.