When talking of how to raise investment capital, we can remember an old and time-tested saying by Warren Buffet, “never lose money”. Of course, it does not mean selling all your assets right at once whenever the situation in the market and in the world is heating up. At the same time, investors still need to be aware of niche-specific movements to quickly react and make better decisions when the time comes. This is what we call investment capital protection.
In this article, we are going to discuss some practical advice on how to not only raise but also protect your investment capital from the stock market crash.
Investment capital combines all assets and instruments you have as the tool to endure and grow wealth in the long run. Commodities, stocks, bonds, and other popular instruments that mainly refer to long-term trading introduced a broader investment capital definition.
So. So when we actually speak about how to protect that capital, we consider protection of all funds and assets one keeps either for the future retirement or for kids’ education. The question is extremely popular today when different stock markets balance between a drastic crash and enormous skyrocketing. Every new release or news is very hard to predict. This is where the following recommendations will certainly help to keep your capital safe.
Every time you have doubts whether to keep certain stocks as a part of your investment capital or not, shift to their quality. It is easy to learn how a company performs using its historical data. It helps to see how specific assets managed to overcome the recent crisis and what their values were. Consistent performance is the mark of stock quality. Even when the worst times come, you can feel protected.
Asset allocation is a proven way to protect your investment capital. It works as a natural hedging tool against extreme market liquidity and valuation. When we say “asset allocation”, we mean a well-planned and disciplined approach also known as the cyclical modality. It works pretty simple:
The power of futures should never be underestimated. We never know for how long good or bad times are going to last. At the same time, futures have always been a good solution to monetize or lock-in some of your profits. Locking in the profit means selling equivalent futures against your current position on the cash market.
As a result, you have your profit locked, which means it will never be affected by the stock market moves no matter how extreme or unpredictable they are. To make the most of this tool, we recommend going short in the future at least once a month. After you earn a monthly spread, your portfolio gets an additional monthly interest rate as well.
Portfolio diversification is another effective way to protect your investment capital from downside risks. The term “diversification” means spreading your investment capital across multiple assets, sectors, markets, and themes. From gold and real estate to stocks and securitized instruments – the selection is very broad. However, it does not mean you should buy every asset you come across. Investors are supposed to understand how a chosen niche or market works.
The idea of capital investment protection is very simple. To succeed, you need to be greedier when the rest is fearful and being a bit more fearful when the rest is greedy.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.