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Wealth protection strategies uncovered: Three ways to crash proof your portfolio

by , 30 June 2015

Yesterday, you may have got a fright when you noticed how the Johannesburg Stock Exchange and stock markets across the world fell as worries over the Greek crisis hit.

When things like this happen, it brings home the risk of a stock market crash and the impact it could have on your portfolio.

So what can you do to minimise the impact of a stock market crash on your portfolio?

Read on to find out…


Wealth protection strategies that will help protect your portfolio


Whether the stock market crashes or enters a sustained bear trend, one thing is for sure, you need to have strategies in place to deal with it.

If you don’t and the market turns, chances are you’ll lose a lot of money on the stock market.

There are three wealth protection strategies that can help reduce your investment risk now and protect you when the market turns…


Wealth protection strategy #1: Asset allocation


Asset allocation involves spreading your wealth across different asset classes. For example, investing in stocks, bonds, property, precious metals and cash.

Different asset types tend to perform differently from one another. By spreading your wealth across different assets, you can reduce the impact of one or two assets performing badly on your overall wealth, Brian Hunt and Ben Morris in The Crux explain.

How you spread your assets is up to you. It depends on your attitude to risk. For example, a more conservative investor would hold less stocks but more bonds.


Wealth protection strategy #2: Position sizing


Position sizing is how much you hold in each stock. You don’t want to be too heavy in one or two stocks. If these stocks take a turn for the worse, your portfolio will pay the price.

You need to work out an exposure you’re happy with.

To use position sizing, you need to use it with the next wealth protection strategy…


Wealth protection strategy #3: Stop losses


To work out your position sizing, you need to work out the risk you’re willing to take on using stop losses.

When a share price hits a stop loss you sell, no questions.

If you decide to run a 20% stop loss, this means if a share falls 20% you sell. In other words, if you invest R100 in a share and it drops to R80, you sell. This means your loss would be 20%.

By using your stop losses along with your position sizing, you can determine how much you’re risking per stock.

So there you have it. Three ways to crash proof your portfolio.

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Wealth protection strategies uncovered: Three ways to crash proof your portfolio
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