Investing: Possible Strategies to Prepare for a Correction

Remnants of a Great Week on Wall Street

Overall, the Stock Market ended on a high note, with 2018’s second week of rallies.

I say this now, because there has been talk about a major correction. Well, because the Stock Market had been on a massive rally in 2017, investors are beginning to get worried a little.

Yes, it is a concern that, for the most part, the stock market has been doing well.

When will the correction occur?

How big of a correction will it be?

Or will we continue to become the biggest bull market ever?

These are logical questions to ask ourselves when the Stock Market appears to be getting ahead of itself.

But, it’s important to plan strategies for your stock portfolio in the event a major correction DOES occur.

Possible Strategies to Prepare for a Correction

Keep your stock portfolio diversified.
This is a given, but it cannot be emphasized enough times. Divide and conquer. Don’t put all your eggs in one basket. These are old sayings that ring true when it comes to investing. Divide your portfolio into at least five different sectors: Defense, Financials, Consumer Goods, Technology, Healthcare, Energy and so on.

Invest in Blue Chip stocks and collect dividends.
Keep a core set of blue chip stocks that have been long proven companies. Make sure they pay dividends!

Hold long term positions of more than a year.
It’s important to have a subset of stocks in your portfolio that are big, long term winners. I call these golden stocks. And these are stable companies that have an uptrending record of several years, even decades. These will be stocks that have a better chance of surviving a major correction. Most of these will be Blue Chips, and paying dividends.

Identify your short term stocks for trading.
Keep a special set of stocks for short term trading. For swing trading or momentum trades, these stocks are to make quick money so that you will continue to set capital aside for when a major correction does occur, so that you’ll have the cash to buy key stocks when they fall.

Reserve capital for a major correction.
No one knows when a major correction will happen, so it’s best to reserve capital for scooping up great stocks when they dip, and when you can buy them at a discounted price.

Trade within a Roth IRA brokerage account.
For those shorter trades of less than a year, trade within a Roth IRA account. You can trade as many times as you like and need to, and not being dinged with the capital gains tax. As long as you are not withdrawing your cash earnings, you will be trading tax-free. Although you’ll still be charged the commissions.

Take some profits off the top.
If you think a major correction will occur, sell some shares of your best winners, but don’t sell all your shares. Take some off the top and keep the majority of your shares. Once again, you’re converting those winners into a little cash to buy key stocks once the correction occurs.

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Carlos Rull

Carlos Rull is a musician living in the San Diego area. His interests include Yoga, Eastern Philosophy, Zen Buddhism, and Gardening. He plays drums, piano, and composes New Age & Ambient music, and his albums are available on iTunes and

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