The Dow Jones Industrial Average plunged 1,175 points yesterday (Feb. 5), the single largest one-day drop ever. Combine that with Friday's losses, and the Dow dropped nearly 7% in just two days.
With that sort of sudden drop in the Dow, it's natural to be concerned about protecting your retirement, and your wealth.
But we're here to remind investors that now is not the time to panic. Our experts are here to help you find solid footing as the market plunges into uncertainty. By using our stock market crash protection plan, you can not only protect your money from losses, but turn the Dow's decline into a profit opportunity...
Now, we want to make sure you know that this isn't a stock market crash. In fact, Money Morning Chief Investment Strategist Keith Fitz-Gerald predicted there would be a correction in the first quarter this year.
Here's what happened...
Friday's sell-off started as routine profit-taking, but computer trading algorithms took over in the last hour, spiraling the market into a much quicker downturn.
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You see, some of the biggest investment firms on Wall Street use computers to automatically execute trades when they are triggered by external events. This helps these hedge funds hedge against risk or quickly capitalize on changing market conditions. In this case, the sell-off triggered the computers into selling off too, which happened so fast humans couldn't keep up.
But that's no reason to overreact and make a rash decision that could cost you money in the long term. "The single biggest and most expensive mistake you could make is to try to second-guess the markets right now," Keith told us. "This kind of gut-wrenching drop is simply a technical market recalibration, albeit one that's pretty darn scary."
But even though we didn't witness a stock market crash this week, it's still worth being cautious...
As Keith reminds us, "big sell-offs like this rarely happen in isolation, which means that we may get a second white-knuckle day... or even a third."
While you don't want to overreact, you can take some simple steps to protect your money.
This is a great time to tighten your trailing stops, for instance. Tightening your trailing stops will make sure you exit your positions in case another day like Monday sends your stocks into a territory you aren't comfortable with.
And you can follow the four simple steps in our stock market crash protection plan. Even though we aren't expecting a real market crash, the steps in this plan will help guard your portfolio against volatility in uncertain times.
Plus, these four steps will help you turn a market correction into a profit opportunity...
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Our first protection strategy is to buy gold, because owning gold is a useful hedge against uncertainty in the stock market.
And gold's use as a hedge against market downturns isn't just wishful thinking. Check out how gold held its value during the 2008 financial crisis below...
Between the start of the downturn and the end, the Dow lost 49% of its value, while gold prices actually rose over 5% in the same time.
Keith says, while gold's stability is a real asset to any portfolio, you don't want to overdo it and put all your money in gold. Keith says studies have shown putting 2% to 5% of your investable assets in gold adds stability to your portfolio without sacrificing growth.
Plus, adding gold to your portfolio is simple to do with the SPDR Gold Trust ETF (NYSE Arca: GLD).
"I recommend the SPDR Gold Trust because it's easy to own, liquid, and well-established," said Keith.
GLD isn't as expensive as an ounce of gold, but it gives investors the exact same benefits.
For example, an ounce of gold currently sells for $1,332.2 an ounce. That's an 8.7% increase over its price of $1,225.8 an ounce around this time last year.
GLD currently trades at $126.2 a share and is up about 8% over the same time. As you can see, GLD comes very close to matching the change in value of physical gold, and it's much easier to buy and hold.
While gold is a sure bet to protect your money, our second strategy will help you profit, too...
Our second strategy is one of the simplest ways to profit from a market downturn: short the overall market.
While shorting a stock can expose investors to potentially unlimited losses, our strategy avoids that unnecessary risk so you can safely profit...
You see, a traditional short position requires the trader to sell borrowed stock and buy it back at a later date. If the stock's share price drops, then the trader makes a profit (they sold the borrowed stock at a high price, bought it back at a lower price later, and pocketed the difference).
But this strategy can be risky if the stock's share price goes up.
While the farthest a stock can fall is to zero, there's theoretically no limit on how high it can climb. The biggest risk for a short seller is if the stock's price rises, and they have to repurchase the stock at a higher price than what they sold it for. There's no limit to how high their loss could be.
Shorting the market doesn't have to be this risky.
Buying funds that short the overall market is a straightforward way to profit from a downturn without being susceptible to infinite risk. As the stock market falls, the share prices of these funds will rise, and as the stock market climbs, the share price of these funds fall. There's no need to take a risky short position on an individual stock to profit from a market downturn.
Keith recommends a similar strategy, but instead of an ETF, Keith recommends the Rydex Inverse S&P 500 Strategy Fund (MUTF: RYURX), a mutual fund that trades inversely to the S&P 500.
RYURX rose 4.2% on Friday, and if the market sees another round of sell-offs like that one, you can expect similar profits.
Even though RYURX isn't as risky as a traditional short position, it still carries some risk. If the market rises, the value of RYURX will fall. That's why you still need to be careful when trading these funds.
Keith says to use an inverse fund as a hedge.
That means don't allocate more money to an inverse fund than you're willing to lose. Using an inverse fund is simply a strategy to keep you profitable during a downturn or crash.
While our first two strategies are effective hedges against a market crash, you can still own stocks in the rest of your portfolio that will outperform the market...
The third strategy for protecting your money is to own stocks in the "Unstoppable Trends."
While computer algorithms were at the center of the recent sell-off, humans are susceptible to emotions and psychological impulses that lead to mistakes. That's just as true of hedge fund managers as it is for retail investors putting away for retirement.
Just look at what happened during the dot-com crash of 2000.
After the Internet was commercialized in 1995, investors poured money into Internet stocks, hoping for the next big winner. And it didn't matter if the actual business was profitable or not. Investors were speculating Internet companies would change the economy.
There's no better example of this speculative bet than the rise of Pets.com, which made its IPO in 2000. The company raised $82 million during its IPO, but the Internet pet supply company was completely unprofitable. In 1999, the company only made $619,000, but it spent nearly $12 million on advertising.
This sort of risky speculation drove stock prices to unsustainable heights. The tech-heavy Nasdaq soared 571% between 1995 and its pre-crash peak on March 10, 2000.
In short, traders let the emotional lure of a huge win overrule their common sense.
When the tech bubble popped, the whole market fell. Pets.com stock collapsed from $14 a share to $0.22 a share by the end of 2000. The overall Dow fell 36% from the start of 2000 to the end of the crash in October 2002.
But investors who didn't chase speculative positions and stuck to companies in the most in-demand sectors were protected from the worst of the crash, and some even profited.
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The trick to making huge profits is to find "must-have" companies that fall into what Keith Fitz-Gerald calls the six "Unstoppable Trends": medicine, technology, demographics, scarcity and allocation, energy, and war, terrorism, and ugliness (also known as "defense"). The Unstoppable Trends are backed by trillions of dollars that Washington cannot derail, the Fed cannot meddle with, and Wall Street cannot hijack.
Two of Keith's favorite Unstoppable Trends stocks are Raytheon Co. (NYSE: RTN) and Becton, Dickinson and Co. (NYSE: BDX). RTN and BDX are leaders in the Unstoppable Trends of defense and demographics, respectively.
Raytheon is one of the leading defense contractors in the United States, with the third-largest contract portfolio of all defense contractors. Because defense is an ever-present need, Raytheon's services will always be in demand, no matter what the rest of the market is doing.
Similarly, BDX provides medical supplies for hospitals and long-term care facilities. That means as populations age and need more care, BDX's service will grow in demand. And because populations are always aging, Becton Dickinson's products are always in demand.
Check out how some of Keith's favorite Unstoppable Trends stocks fared during the dot-com crash in 2000 in the chart on the right.
If you owned these companies during the dot-com bubble, you would have profited over 20%, even as the Dow fell 12% between 2000 and 2002.
And RTN and BDX are still going strong.
Raytheon is up 34% over the last 12 months, while Becton Dickinson is up 25%. Plus, Wall Street analysts are bullish on both companies going forward.
Raytheon has one-year price targets as high as $265 a share, a 34% gain from today's price of $198.12 a share. BDX is forecast to grow up to $260 a share in a year, a 17% jump from today's $222.66 share price.
And if the downturn continues or we see another day like Friday, we have one last way investors can turn it into a profit-making opportunity...
The last way to protect your money, and profit, is to use a downturn as a buying opportunity.
Money Morning Technical Trading Specialist D.R. Barton, Jr., says a market downturn is a great time to buy some of the best stocks at a discount.
Barton says investors who buy "any or all of the 'Fab Five' tech stocks" on a downturn will be glad they did. The "Fab Five" includes Facebook Inc. (Nasdaq: FB), Amazon.com Inc. (Nasdaq: AMZN), Microsoft Corp. (Nasdaq: MSFT), Alphabet Inc. (Nasdaq: GOOGL), and Apple Inc. (Nasdaq: AAPL).
If the market dipped, you would have the opportunity to buy into the most innovative tech companies in the world at a discounted share price.
And here's why this make sense...
Throughout the Dow's history there have been crashes, corrections, and pullbacks - there have been four pullbacks of at least 10% during the current eight-year bull market alone. But the market has consistently rallied back to new highs.
You can see how the Dow has fallen and recovered throughout its history below.
That means pullbacks, and even crashes, are short-term events. And it also means they are opportunities for buying some of the best companies in the world at a discount. You know companies like Apple and Amazon aren't going away anytime soon, but overzealous traders will sell these companies at a short-term discount when markets dive.
Use their short-term thinking to your advantage.
To show how effective this strategy would have been during the 2008 stock market crash, let's look at how investors who owned the Fab Five tech stocks would have done, depending on when they bought in or added to their positions.
Investors who bought an equal share of the Fab Five tech stocks before the 2008 crash - the market peaked in 2008 on May 9 - would be up 490%. While that's a great return, because these are some of the best stocks you can own, investors who bought during the crash would have done even better. Investors who bought the Fab Five stocks at the trough of the crash - March 6, 2009 - would be up an average of 753% by now.
And if you're looking for even more lucrative recommendations, we've got you covered...
Keith Fitz-Gerald's Money Map Report subscribers who followed along with his recommendations took down 20 triple-digit winners last year - including a 201.68% return and 132.35% gain that closed out in the same week.
Two days into 2018, they closed another triple-digit winner worth 276.92%.
Each week, Keith shows everyday Americans how to tap into the world's biggest high-profit trends, ahead of the crowd.
There's nothing complicated or overly risky - and no guesswork involved. Right now, he's looking at another double-your-money opportunity, and there's still time to find out how to subscribe and access all of Keith's recommendations by clicking here now.
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