Start Trading to Protect Your Portfolio from the Next Crash

Asad Dossani
Don't put all your eggs in one basket. That is investing rule number one. For most investors, diversification means allocating your capital across different stocks.

While this is beneficial, it's effectiveness is limited. You may be protected from the risk of one stock going bust. But you're not protected from the entire market going bust.

Consider the following statistic: On average, four out of five stocks fall on days when the overall market falls. If the market crashes, you'll almost surely lose money. And no matter how diversified your stock portfolio is, one crisis can wipe you out.

But there is a way out. You can take diversification to the next level. For example, you can allocate capital to different asset classes such as commodities. Or you can allocate to different investment or trading strategies.

Suppose you allocate a portion of your portfolio to trading. And you can keep this amount small to start. How could this help you?

First, you can improve your returns. You can expect to make a higher return on your trading capital compared with your long term portfolio. Our trading strategies expect to make returns of 20-25% on capital per year. Of course, trading does require more effort. But we can help you with that.

Second, you can reduce your risk. Allocating capital to a trading strategy is a great diversification tool. This is because most trading strategies are designed to make money regardless of the overall market direction. In a bear market, traders can make money by taking short positions.

Now this is real diversification! Suppose the market crashes and your stock portfolio tanks. Your trading strategy's profits can soften the blow.

The most effective trading strategies for diversification are long-short strategies. Because such strategies make money regardless of market direction, take both and long short positions, the returns have a low correlation with the overall market. And this is how you can protect your portfolio from the next crash.

Now I don't want to give you the impression that trading is low risk. It isn't. On its own, it's riskier than long-term investing. Of course, you are compensated with higher expected returns.

But hopefully I've convinced you that this isn't how you should think about risk. What matters is the risk across your portfolio, not the risk of the individual components. This is why we diversify in the first place.

Here's the truth: A market crash is coming. I don't know when or why. But I do know that it will happen. All markets go through cycles and crashes. Before that crash occurs, make sure your portfolio is protected.

Do you want to add trading to your portfolio? Let us know in the Club or share your comments here.

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6 Responses to "Start Trading to Protect Your Portfolio from the Next Crash"
G V RAMANA RAO
09 Jun, 2016
I want to knowLike 
Joseph
08 Jun, 2016
How much investment you need to make for short term trading? What is the min Cycle tome for short term trading? Pardon me for asking such fundamental questions since I am totally a novice to Trading. Thanks, Like (1)
John Samuel
07 Jun, 2016
Would like to know more about trading options and how to escape unscathed from the imminent crash if there is oneLike 
Samy
06 Jun, 2016
Hi, I would like to know more details on this trading option.Like 
kapil
03 Jun, 2016
I am intrested to start trading to protect my portfolio for the next crash Like (1)
kapil
03 Jun, 2016
I want to know details of this.Like 
We request your view! Post a comment on "Start Trading to Protect Your Portfolio from the Next Crash". Click here!