If you want to play defense in anticipation of market turmoil, here are two traditional strategies investors used to use -
Dividend-paying Stocks
Invest in companies with long histories of reliable earnings and paying dividends is a proven strategy, unfortunately this time around this strategy might not work because most of these stocks have been chased up to very high valuation levels by income investors in today's low interest environment.
Interest Bearing Bonds
Bonds are usually a safe haven for investors, but not anymore this time around. The low interest rates and high chance of higher interest rates would cut into the value of the existing bonds significantly.
So, what to do this time if you want to play defense?
First, invest in funds rather than stocks.
Second, find funds that have proven track records to withstand market turmoils - those held up well when market was down and provided healthy gain when market was up.
How to Find Such Funds?
Use the following 3 characteristics in your search -
Experienced Manager
With long tenure and consistent strategies, you can see their performances in bear markets, not just during recent bull market.
Lower Volatility
Lower than its benchmark index, especially important is lower volatility during market down turn periods.
Histories of Good Returns
Good returns still required because you don't want to sacrifice safety to too much returns.
In our next blog post, we will share some examples of funds that fit the profile above.