At the end of 2014, we predicted volatility would build throughout the year and then govern the markets altogether in the last half of 2015.
This deceptively simple prediction was quickly proved right, starting last January when the Swiss de-coupled the franc from the euro and sent their currency soaring – and global markets and forex positions tumbling.
So it was we were ready, with cash in hand and ready to buy, when the markets tanked on Aug. 24, 2015, sending the VIX to a six-and-a-half-year high of 53. Adding risk at that moment, when everyone else was selling, gave us some of the best entry points of the year on quality stocks like Apple Inc. (Nasdaq: AAPL).
And that paid off handsomely as investors bid up stocks throughout November and December of this past year and we took some money off the table.
The volatility that we experienced and profited from in 2015 is only going to intensify as a full-fledged bear market takes shape. That's why our Editors want everyone to pick up these investments as soon as possible.
Every one of these is easy to buy and perfectly positioned to pay off in 2016…
Shah Gilani, Capital Wave Strategist: These Holdings Offer Protection and Profit
Tens of billions of dollars flowing out of junk bonds and into stocks sent shares on a year-end rally, but I don't think the stock market is going much higher in the near term, and in fact it's likely to head a lot lower.
So the investments I really like right now are protective in nature; nice, liquid exchange-traded funds (ETFs) that let you easily and safely play the trouble that's spooling out across the stock market and make money when the S&P 500, Dow Jones, and to a lesser extent, the Nasdaq all dip.
To short the Dow, use ProShares Short Dow 30 (NYSE Arca: DOG).
To short the S&P 500, I like ProShares Short S&P 500 (NYSE Arca: SH).
And to short the Nasdaq, buy ProShares Short QQQ (NYSE Arca: PSQ).
Now, in 2016, we can expect periods of intense volatility: short, sharp drops that can play out in a matter of a few hours.
In those cases, be ready to use a little leverage to go "ultra-short" and get the absolute most profit from the market dips. The ProShares UltraPro Short S&P 500 (NYSE Arca: SPXU) will get you three times the profit. On Jan. 4, 2015, for instance, the S&P 500 tumbled around 2.4%, so a leveraged inverse ETF would return 7.2%.
These non-leveraged ETFs use a 5% to 10% trailing stop, and be ready to sell on any rally. Otherwise, be watchful of these positions and hold them for a few days if the market is under pressure.
Michael A. Robinson, Defense & Tech Specialist: The "Internet Economy" Will Buck Volatility
I think the broader markets will surely be choppy this year, but I'm also convinced that the technology sector will outperform them easily. With these shares, a bear market really isn't anything to worry about.
And it's particularly interesting that, just last month, we marked the 20th anniversary of a true turning point in tech investing. It was in December 1995 when Morgan Stanley analysts Mary Meeker and Chris DePuy released the "Internet Report," where they showed how the web and communications technology would transform the entire economy.
That report, which ultimately became a best-seller when it was released in book form, was right on the money, of course.
Now, 20 years later, our society has arrived at a point where high tech is no longer "nice to have," but is instead becoming essential to the day to day functions of our country, our lives, our infrastructure, our economy, and our national defense. Now we need tech as surely as we need water and power.
That kind of necessity and forceful market presence just isn't going to blink at volatility. I think three big-caps in particular, Amazon.com Inc. (Nasdaq: AMZN), Apple Inc. (Nasdaq: AAPL), and Microsoft Corp. (Nasdaq: MSFT), are in position to get the absolute most benefit out of the nearly $5 trillion that will pour into the e-commerce, mobile communication, and cloud-computing segments over the next five years.
In this case, volatility is going to work in our favor. My "cowboy split" strategy is actually designed to maximize profits when stocks like these take small, near-term dips. With companies like these, you'll want to load up at every opportunity – and make no mistake – a 5% drop in share price is a juicy opportunity.
When you have a chance at tapping that kind of value, it makes good sense to keep plenty of cash handy for shopping when the markets turn rough.
Michael Lewitt, Global Credit Strategist: There Are Unconventional Opportunities
I'll be clear: I am bearish right now, and I see the downward pressure on the markets – China, commodities, slowing growth – as being with us for the foreseeable future.
But that doesn't mean there aren't plenty of opportunities out there, especially for investors with a little imagination and a willingness to go against the grain.
I believe that certain real estate investment trusts (REITs) will be a bright spot in this market environment, particularly if uncertainty grows around the possibility of another Fed rate hike, or if there are signs that the central bank will raise rates higher than the 25-basis-point increments expected.
Even better, these investments pay shareholders handsomely with some of the best yields on the market. Annaly Capital Management Inc. (NYSE: NLY) and Chimera Investment Corp. (NYSE: CIM), for instance, are both yielding 12.8% and 13.9%, respectively. These are a great place to invest some cash in a rough market, and the high dividends will provide a cushion against any share-price erosion. They are also trading at steep discounts to their net asset value (NAV) right now.
I think there are some tempting targets in the stock market now, too, despite the bear run ahead. Two gold miners, Global X Gold Explorers ETF (NYSE Arca: GLDX) and Market Vectors Junior Gold Miners ETF (NYSE Arca: GDXJ), make compelling long-term bets on a recovery in gold, and both are so out of favor that contrarians should find kicking the tires irresistible.