How to Prosper in a Bear Market
Stay the course? In a down market, that's not necessarily the best strategy. Here are five smart alternatives
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Invest defensively. Shift from growth stocks to value stocks, and from speculative to conservative. I say forget about cutting-edge tech stocks like Google (GOOG) and Apple (AAPL). These stocks perform best in a strong economy. In a weak economy, they are less attractive.
What sorts of stocks are defensive in nature? Those of "boring" companies whose produce necessities as opposed to luxuries. Two good examples are Wal-Mart (WMT) and Procter & Gamble, whose products include consumer brands like Crest, Tide, Head & Shoulders, Pampers, and Bounty. People don't cut back on these sorts of consumer staples, even when times are tough. Are you going to stop brushing your teeth or washing your clothes to save a few bucks? You'll cut back on discretionary items instead.
Give gold a look. Gold is one of the least understood investments, and even intelligent investors often make the mistake of avoiding it. In difficult economic times, gold is often the best investment. It's the ultimate hedge against inflation.
For most of history, gold was the currency of economic exchange. Paper money has come to predominate only recently. The problem with paper money, of course, is that the government can print as much of it as they like. And it does. This leads to a devaluation of the currency, a.k.a. inflation.
The great advantage of gold is that you can't print it. It has to be mined, and that helps put a check on inflation.
The easiest way to buy gold is to pick up shares of Gold ETF (GLD) or the Market Vectors Gold Miners ETF (GDX). I often tell my clients that 15% to 25% of their assets should be allocated to gold.
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About the Author
Greg Feirman is a registered investment advisor in Sacramento, California, and the founder & CEO of Top Gun Financial Planning. His investment commentary has been featured in The Wall Street Journal Online, and his blog is one of The Kirk Report’s “Blogs I Read."
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