4 Strategies To Protect Your Portfolios From Further Losses

4 Strategies To Protect Your Portfolios From Further Losses

What can I do if my investments are losing money?

What are some strategies you can consider to protect your portfolios from further losses? On Bigger Picture, Ryan Huang speaks to Sani Hamid, Director for Wealth Management, Financial Alliance to find out more.

Strategy #1: Conservative Damage Control Approach

For: Conservative investors whose portfolio is way above your risk tolerance because of the economic downturn.

What you can do: Do a little damage control by realigning your portfolio according to your risk profile. If it's overly skewed towards equities [for instance], add in some bonds in order to bring down that volatility.

Strategy #2: Aggressive ASAP [As-Soon-As-Possible] Approach

For: Aggressive investors who are planning to make up for the losses ASAP after getting caught by the sharp market decline.

What you can do: Look for instruments or investments which are negatively-correlated to the market, so if markets fall, their portfolios make back much of the losses in a relatively quick manner. Some of these assets include volatility funds or gold funds.

Strategy #3: Moderate Systematic Approach

What you can do: Find alternatives outside of the equity markets, such as bonds or alternative investments which have historically given you 4-6% returns annually. Although you are stepping out of the equity markets, you will be able to make [up for] the losses in a systematic way over a period of time [if you follow this investment].

Strategy #4: Market Recovery Approach
(Involves switching 100% of your holdings into a money market fund and then reallocating it back into the market with a dollar cost averaging approach.)

For: Investors who do not wish to take the systematic approach [investing outside of equity markets].

What you can do: Some investors feel that they’ve lost so much in the equity markets, the [only] right way is to make back [the losses] through the equity markets. [In this approach], when you see or feel that the markets are going to come down in the next couple of months, you get out first and start to re-enter at dollar cost averaging. Break down your investments into several instalments (recommended about 18 months), then gradually move your investments back into the equity market over [the recommended period]. So when the stock markets recover, [even if] you don’t get the actual bottom [buy-in price], you'll [still] be able to get a good average buy-in price near the bottom.

Ryan Huang: What will you advise investors to do [to prevent further losses] - ride it out or diversify your portfolio?

Sani Hamid: Most [investors] fall into either one of the buckets [1 of the 4 strategies] and that’s what you ought to be doing. The worst thing is to stay put and [not] do anything, which we call an investor paralysis. That is out of fear, like the deer in the headlight scenario, whereby they stand still [because of the shock of having lost money] and hope the markets will recover. And if the markets don't [recover], they suffer more losses and start to bail out of the markets at the most inappropriate timing when the markets are near that low. You really need to act now before the markets move so that you have a plan in place.

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