It's no secret the equity markets have made large moves to the upside since the last major correction in 2008. I am of the opinion these moves are a direct result of quantitative easing (money printing), operation twist (swapping short term bonds for long term bonds) and artificially low interest rates. Eventually a correction will occur and it is important to have a plan in place to protect yourself. Below are some steps to ensure your nest egg remains intact.
1. Sell a portion of your stocks and have a heavy position in cash. You can manually sell, set a trade stop, or set a trailing stop. This way you are liquid and can buy quality companies at a discounted price. ( Follow the Money offers a market barometer that would help you decide when to sell) http://ftmdaily.com/investing/stocks/market-barometer/?ref=36
2. Good corporate bonds may be on sale during an equities correction. If deflation kicks in, money will dry up and good quality companies may be downgraded by the rating agencies. With a downgrade institutions may cut these holdings. If this occurs discounted bonds often become available.
3. Hold blue chip stocks that will remain stable in the ugliest of times. Dividend aristocrats would be a good place to look for these quality stocks. Dividend aristocrat etfs that provide these qualities include NOBL, REGL, and PEY. According to Investopedia, to be considered a dividend aristocrat, a company must typically have raised dividends for at least 25 years.
4. Buy inverse ETFs. Tickers like SH ( 1x leverage), SDS ( 2x Leverage), or SPXS ( 3x leverage). All of these vehicles allow you to short the S&P 500. If the S&P 500 falls they will rise.
5. Consider options trading during a time of high volatility. In a downturn a flight to quality will occur. I would expect consumer staples and utilities to lead the market. Speculative money will dry up and unessential items will fall.
6. Keep your eye on volatility. VXX will make extreme moves as uncertainty moves into the market.
7. Be ready in advance. Have a list of stocks written down, so when the moment arises, you are ready to buy instead of doing homework.
8. Have 5-10% in Gold/Silver. This will allow you to be your own central bank and hold real wealth in your hands.