Iran’s Quiet for Now – Here’s How to Handle What Comes Next
|Editor’s Note: Keith prepared this story on Tuesday evening ahead of Iran’s missile attack on American military barracks in Iraq. Keith does not believe this is the end of the situation “by any stretch of the imagination and urges investors to stay the course as outlined below. He is watching the situation carefully and will be in touch as developments continue.|
Like millions of people around the world, I woke up to news that a U.S. airstrike had taken out Iranian Major General Qassem Soleimani last Friday.
My thoughts immediately turned to your money.
The world’s financial markets have been relatively calm in the days since, but I don’t expect that to remain the situation for long.
Iran will strike back.
The only question is whether or not YOU and your money will be ready.
There’s a lot of mental energy being wasted at the moment with regard to whether the strike was justified. Chances are that you have an opinion on the matter just like I do.
What matters right now is what you need to do to protect your money when Iran retaliates, not if.
The first step is very clear and, thankfully, very simple.
Step #1: Buy an Inverse Fund
Studies show that specialized inverse funds like the two I recommend – the Rydex Inverse S&P 500 Strategy Fund (RYURX) and its Exchange Traded Fund equivalent the ProShares Short S&P 500 (SH) – can take the sting out of a major market drop. That’s because they appreciate as the S&P 500 falls.
You don’t want to go crazy and put everything you own into ’em, though.
Inverse funds are one trick ponies, meaning that you’ll lose money if the S&P 500 continues to appreciate and there is – hopefully – no attack. However, they’re truly inverse as the name implies so they zig when everything else zags (which means they’ve got a lot more to offer you than Wall Street’s usual thinking on diversification).
The key with an investment choice like these is to buy shares that are worth approximately 1-3% of your overall investable assets because what you’re looking to do is a) take the sting out of a market drop and b) dampen overall portfolio volatility.
Step #2: Know Which Stocks You’ll Keep and Which You’ll Abandon
Not many people understand this but I guarantee you that savvy investors do.
The key to big profits is continually harvesting your winners and periodically pruning your losers or, at least companies that no longer light your jets.
It’s up to you to decide which stocks you want to keep and which stocks you need to eject if the you-know-what hits the fan – a situation euphemistically known as SHTF, which stands for something I can’t print here… even if they’re not currently in the red, and even if you hold onto them for just a little bit longer.
Everybody’s got ’em… perhaps you bought something that’s run up or you inherited company shares from a loved family member. Either way, they no longer fit your investment objectives or match up to the reasons why you bought in the first place.
Those are a great place to start selling … now, before the you-know-what hits the fan, and you can’t.
The other way to tackle this is to take a good look at your portfolio and figure out which shares match up the Six Unstoppable Trends and which don’t. Keep the former, and start harvesting the latter.
Again, as in sooner rather than later while you can sell into the strength that’s there now.
Many investors forget that the NYSE was closed for three days following 9/11. I think it’s highly likely that Iran will target our financial markets in such a way as to disrupt the flow of capital, or at least try.
Step #3: Create a “Buy” List
It will take nerves of steel to buy while everyone else panics, but that’s not the point.
History shows very clearly that people who buy stocks for far less than they’re worth when nearly everybody else is too scared to do so make bank. Especially when sentiment borders on panic.
Warren Buffett, for example, turned $174,000 in personal savings into a $63 billion legacy. Thanks, in good part, to similar moves made under similar market conditions.
Peter Lynch claimed that this move is the one thing he relied on to turn his $20 million fund into a $14 billion+ investing powerhouse.
The late Sir John Templeton insisted that buying at points of “maximum pessimism” helped him make so much money throughout his investing career, that he was able to give away more than $1 billion before he died. He famously bought shares of every NYSE stock trading for under $1 on the eve of WWII, and made many times his money when things picked back up.
The bottom line is simple.
You know that Iran will retaliate, either directly or through one of the country’s many groups with which it is allied or supports. That could conceivably include the Hezbollah, Iran’s military itself or Shiite militias. There are also reportedly dozens of sleeper cells, cyber-attacks, and a whole lot of other nastiness out there.
You simply do not want to leave your money unguarded at the moment.
Case in point, Iran’s Foreign Minister Mohammad Javad Zarif told CBS correspondent Elizabeth Palmer that there will be a retaliatory response. Not maybe, not perhaps… will.
We don’t know when or how which means that you may have anything from hours to days to months to get your act together.
Don’t mess around.
The steps I’ve laid out today are not flashy. However, they are effective.
That’s the point.
Until next time,