Top Ways to Protect Your Portfolio from the Pullback

May 4, 2023

There’s a tremendous amount of fear in the market.

After a few days of upside, we’re headed lower AGAIN. Not only are we dealing with fears of recession, we’re dealing with panicky investors and the very real chance of more bank failures. In fact, contagion fears are hot with regional banks sliding. PacWest, for example, is down about 40% at the moment even after the Federal Reserve said the bank crisis is contained.

Going by the Fed’s recent blunders, including calling inflation transitory, we’re willing to bet they’re wrong on the bank crisis, too.

So, how can investors protect themselves from the chaos?

One way is to hedge your portfolio with volatility-related funds, such as the VIXY and UVXY. Another way is to take some advice from Warren Buffett.

For one, remember that markets are resilient.

History has shown us that even in the worst, most terrifying economic downturns, are temporary. Markets have always bounced back.

As even Warren Buffett once said in The New York Times:

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. Fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.”

Two, don’t wait too long to invest.

As Warren Buffett has also said, “I haven’t the faintest idea as to whether stocks will be higher or lower a month or a year from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”

Three, get defensive.

When the economy goes down the toilet, remember that millions of people still need to eat, brush their teeth, go to the doctor, heat their homes, pay for utilities, etc. Defensive stocks, include 3M, Colgate-Palmolive, Coca-Cola, Pepsi, the list goes on.

If you’re on the fence about diversifying with ETFs, these are just a few of the top reasons you may want to consider investing.

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