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Four Ways to Protect Your Portfolio in a Downturn

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trading Warren Buffett portfolio protect

The Dow Jones just fell 2,506 points. The NASDAQ fell 1,050.  The S&P 500 was down as much as 311 points. Investors panicked and sold, probably thinking this is the way to protect their investments.

Major moving averages were crossed.  In fact, the Dow Jones just broke its 200-day.

“Indeed, a wall of worry has morphed into [a] towering wall of pain as extremely fragile circumstance across the capital markets continues to undermine investor confidence,” said Stephen Innes, head of trading at Oanda Corporation, as quoted by MarketWatch.

All thanks to a mountain of worry

Some believe the Federal Reserve made a mistake in raising rates, which could make borrowing much more expensive. Mid-term election jitters can be blamed. The looming end of quantitative easing is ending in Europe. Earnings growth may be slowing.

Fear has slipped into cryptocurrencies, as well.  That’s why it’s essential to protect your portfolio at all times.

Diversify Your Portfolio in order to better Protect it

While diversifying crypto can be a little more complicated compared to stocks, it’s not impossible.  There are 1,000 odd cryptos on the market, but many are clones of the top coins.  Similarly, the value of these altcoins tend to correlate directly with the big name coins.  But as we’ve seen in 2018, many altcoins have also been performing much better.

Look out for ICOs that interest you or established coins that are moving in the right direction, and diversify your portfolio. In this way, you can protect it more efficiently.

Make Sure you have a Stop-Loss in Place

Ideally, in order to protect your portfolio you have to plan ahead.  Setting a stop-loss means you can possibly protect yourself from a coin that completely tanks.  Make a plan and stick to it.  Is it a long term investment?  Are you taking a risk for a potentially high reward?

With a diverse portfolio, you can afford to back out at a loss and regain that loss elsewhere.

HODL Your Trades, Long-Term

In the crypto space, HODL is a pretty popular term. It is an abbreviation for “Hold On for Dear Life.” In a crash market, when nothing seems to work, it is the easiest thing to do. In fact, most crypto investors do this. HODLing refers to buying crypto coins and holding them in a wallet for a period of time, irrespective of how the market fluctuates.

Therefore, there is little doubt that the strategy of HODLing is quite viable to protect investments. But experts have advice for cryptocurrency investors. According to them, if investors choose to HODL, they should choose from the top five coins on the basis of market cap.

Don’t Follow the Herd

One of the key reasons that many investors under-perform in the market is because they move in and out of assets at the wrong time. Oftentimes, an investor sees everyone else making money from rising markets. This is when they tend to throw every spare dollar into their investments. Unfortunately, when that same investor sees a group of other investors selling, that investor sells too. According to Warren Buffett, they are influenced by the herd mentality, which can be extremely damaging to a trading portfolio.

And remember, markets are resilient.  Don’t panic.

 

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