A:There is no complete security. But there are several precautions you can take to help prevent your portfolio from crashing along with the market.
One way to protect your portfolio is to invest in currencies or a currency fund, says Lee Hull, president of Hull Capital Management, an investment advisory firm in Dallas. “They’re great
because they are noncorrelated to stocks and bonds,” Hull says.
A second way is to use protective stops, which are set points determined ahead of time that mark when to sell the security if it begins to drop. “Every investment should have a stop-loss point. If an investment were down 47 percent in four months, you would have a simple stop-loss that says if it loses more than 20 percent, you get out. That’s probably one of the first lines of defense in keeping your principal intact,” Hull says.
Finally, stick with sectors that are prospering and avoid sectors that are down huge amounts. For example, zero-coupon bond funds, natural resources, and healthcare were all up more than 30 percent in 2000, while the NASDAQ was down more than 50 percent. Industries that are behaving well include banking stocks, financial stocks, real estate investment trusts, and large-cap value stocks, Hull says.