Where to put your money before the market crashes?

Where to put your money before the market crashes?

Introduction: Immediate Action for Market Protection

Mar 10, 2025

As the market shows signs of instability, the question on every investor’s mind is: where to put your money before the market crashes? The answer lies in a strategic, contrarian approach that leverages the psychological dynamics of mass behaviour to your advantage. Here are three key investment categories that historically outperform during market downturns, along with precise allocation percentages for a model defensive portfolio:

  • Precious Metals (20%): Gold and silver are safe-haven assets that tend to appreciate when markets are volatile.
  • Cash Equivalents (30%): High-yield savings accounts and short-term bonds provide liquidity and stability.
  • Defensive Stocks (30%): Consumer staples, healthcare, and utilities are less sensitive to economic cycles.
  • Alternative Investments (10%): Real estate investment trusts (REITs) and private equity offer diversification.
  • Options Strategies (10%): Selling put options can generate income and position you for bargain acquisitions.

These recommendations are grounded in the psychological principle of loss aversion, where investors tend to overreact to negative news, creating opportunities for those who remain disciplined and contrarian. By diversifying across these categories, you can protect your wealth while positioning yourself to capitalise on market inefficiencies.

Defensive Asset Positioning: Specific Recommendations

Precious Metals: Gold and silver are time-tested safe-haven assets. Consider the following ETFs:

  • SPDR Gold Shares (GLD): A widely held ETF that tracks the price of gold. Allocate 15% of your portfolio to GLD for a direct exposure to gold prices.
  • iShares Silver Trust (SLV): Tracks the price of silver. Allocate 5% of your portfolio to SLV to diversify within the precious metals sector.

Physical gold and silver can also be stored in a vault or at home for additional security. The entry point for precious metals is typically when market sentiment is at its lowest, often indicated by a sharp decline in stock indices like the S&P 500. Exit strategies should be based on technical indicators such as the 200-day moving average crossing below the 50-day moving average.

Cash Equivalents: High-yield savings accounts and short-term bonds provide liquidity and stability. Consider these options:

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Defensive Asset Positioning: Specific Recommendations (Continued)

Cash Equivalents: High-yield savings accounts and short-term bonds provide liquidity and stability. Consider these options:

  • Fidelity Government Cash Reserves (FDRXX): A money market fund with low risk and steady returns. Allocate 15% of your portfolio to FDRXX for short-term liquidity.
  • Vanguard Short-Term Bond ETF (BSV): Offers exposure to short-term government and corporate bonds. Allocate 15% of your portfolio to BSV for stability and modest income.

Entry into cash equivalents is ideal when the yield curve inverts, indicating a potential recession. Exit strategies should be based on economic indicators such as a rebound in consumer confidence or a positive shift in the yield curve.

Defensive Stocks: Consumer staples, healthcare, and utilities are less sensitive to economic cycles. Consider these sectors:

  • Consumer Staples: Procter & Gamble (PG): A blue-chip company with a history of stable dividends. Allocate 10% of your portfolio to PG for consistent returns.
  • Healthcare: Johnson & Johnson (JNJ): A diversified healthcare giant with strong fundamentals. Allocate 10% of your portfolio to JNJ for defensive exposure.
  • Utilities: NextEra Energy (NEE): A leading utility company with a focus on renewable energy. Allocate 10% of your portfolio to NEE for stable income.

Entry into defensive stocks is optimal when the market is showing signs of weakness, such as a decline in the S&P 500. Exit strategies should be based on technical indicators such as the 50-day moving average crossing above the 200-day moving average.

Alternative Investments: Real estate investment trusts (REITs) and private equity offer diversification and potential for higher returns. Consider these options:

  • Vanguard Real Estate ETF (VNQ): Provides exposure to a diversified portfolio of REITs. Allocate 5% of your portfolio to VNQ for real estate exposure.
  • Blackstone Private Equity: Invest in private equity funds managed by Blackstone for higher risk and potential higher returns. Allocate 5% of your portfolio to private equity, but ensure you have the risk tolerance and investment horizon to hold for the long term.

Entry into alternative investments is best when market sentiment is negative and asset prices are depressed. Exit strategies should be based on valuation metrics such as price-to-earnings ratios and market conditions.

Options Strategies: Selling put options can generate income and position you for bargain acquisitions. Consider these strategies:

  • Selling Put Options on GLD: Sell put options on the SPDR Gold Shares ETF (GLD) to generate income and position yourself to buy gold at a lower price. For example, sell a put option with a strike price 5% below the current market price and an expiration date of 30 days.
  • Using Put Premiums to Buy LEAPS: Use the premiums from selling put options to buy Long-Term Equity Anticipation Securities (LEAPS) on defensive stocks like PG or JNJ. This strategy allows you to benefit from long-term growth while generating income in the short term.

Entry into options strategies is ideal when market volatility is high, as indicated by a high VIX (Volatility Index) reading. Exit strategies should be based on reaching your target price or a significant decrease in market volatility.

Market Indicators: Specific market indicators can signal when to begin defensive positioning. Key indicators include:

  • Inverted Yield Curve: When short-term interest rates exceed long-term rates, it often precedes a recession. Allocate more to cash equivalents and defensive stocks.
  • High VIX Reading: A VIX reading above 30 indicates high market volatility and fear. Increase your allocation to precious metals and options strategies.
  • Declining S&P 500: A 10% decline in the S&P 500 from a recent high is a warning sign. Begin shifting more into defensive assets.

Exact Exit Strategies: Proper exit strategies are crucial to lock in gains and avoid further losses. Consider these technical triggers:

  • 50-Day Moving Average Crossing Below 200-Day Moving Average: This “death cross” is a strong sell signal. Exit vulnerable positions and shift more into cash equivalents and defensive stocks.
  • Positive Economic Indicators: A rebound in consumer confidence, such as the University of Michigan Consumer Sentiment Index, can signal a market recovery. Begin shifting back into growth stocks and reducing defensive positions.

Step-by-Step Implementation: Here is a step-by-step implementation sequence with timing considerations:

  1. Immediately (0-7 Days): Allocate 20% of your portfolio to GLD and SLV, and 15% to FDRXX. Begin selling put options on GLD to generate income.
  2. Within 30 Days: Allocate 15% to BSV, 10% to PG, 10% to JNJ, and 10% to NEE. Continue selling put options and monitor market indicators.
  3. Within 90 Days: Allocate 5% to VNQ and 5% to private equity. Adjust your portfolio based on market conditions and technical analysis.

Psychological biases such as herd mentality and confirmation bias can make proper timing difficult. Stay disciplined and avoid the urge to follow the crowd. Use technical indicators and economic data to make informed decisions.

Synthesizing the Strategy: Here is a comprehensive investment strategy with percentage allocations:

  • Precious Metals (20%)
    • Precious Metals (20%): GLD (15%), SLV (5%)
    • Cash Equivalents (30%): FDRXX (15%), BSV (15%)
    • Defensive Stocks (30%): PG (10%), JNJ (10%), NEE (10%)
    • Alternative Investments (10%): VNQ (5%), Private Equity (5%)
    • Options Strategies (10%): Selling Put Options on GLD, Using Put Premiums to Buy LEAPS

    Decision Tree for Customization: Tailor the above strategy to your specific situation using this decision tree:

    1. Risk Tolerance:
      • High Risk Tolerance: Increase allocation to options strategies and private equity and reduce cash equivalents.
      • Moderate Risk Tolerance: Stick to the recommended allocations.
      • Low-Risk Tolerance: Increase allocation to cash equivalents and defensive stocks, reduce options strategies and private equity.
    2. Investment Horizon:
      • Short-Term (1-3 years): Increase allocation to cash equivalents and defensive stocks.
      • Medium-Term (3-5 years): Stick to the recommended allocations.
      • Long-Term (5+ years): Increase allocation to options strategies and private equity.
    3. Market Conditions:
      • Bull Market: Reduce allocation to defensive assets and increase growth stocks.
      • Bear Market: Stick to the recommended allocations or increase defensive assets.

    Practical Checklist: Here are the actions to take immediately, within 30 days, and within 90 days:

    • Immediately (0-7 Days):
      • Allocate 20% of your portfolio to GLD and SLV (15% to GLD, 5% to SLV).
      • Allocate 15% of your portfolio to FDRXX.
      • Begin selling put options on GLD to generate income.
    • Within 30 Days:
      • Allocate 15% of your portfolio to BSV.
      • Allocate 10% of your portfolio to PG.
      • Allocate 10% of your portfolio to JNJ.
      • Allocate 10% of your portfolio to NEE.
      • Continue selling put options and monitor market indicators.
    • Within 90 Days:
      • Allocate 5% of your portfolio to VNQ.
      • Allocate 5% of your portfolio to private equity.
      • Adjust your portfolio based on market conditions and technical analysis.

    Monitoring Criteria: Regularly review and adjust your strategy based on the following criteria:

    • Market Indicators: Inverted yield curve, high VIX reading, declining S&P 500.
    • Economic Indicators: Consumer confidence, employment data, inflation rates.
    • Technical Analysis: 50-day and 200-day moving averages, RSI (Relative Strength Index), MACD (Moving Average Convergence Divergence).
    • Valuation Metrics: Price-to-earnings ratios, price-to-book ratios, dividend yields.

    By following this comprehensive framework, you can protect your wealth and position yourself to take advantage of market inefficiencies. The key is to remain disciplined, avoid the herd mentality, and act on informed contrarian strategies.

    Conclusion: Empowering Readers to Break Free from Herd Mentality

    The path to financial success during market downturns lies in breaking free from the herd mentality and adopting a contrarian mindset. Understanding the psychological principles that drive market behaviour can transform collective panic into a strategic advantage. The recommendations provided in this essay are designed to empower you with the knowledge and tools to invest with confidence and clarity.

    Remember, the greatest opportunities often arise amid market turmoil. By diversifying your portfolio, leveraging alternative investments, and implementing disciplined risk management, you can protect your wealth and potentially grow it during the next market downturn. Stay informed, stay disciplined, and stay contrarian. Your financial future depends on it.

    Horizons of Knowledge: Exceptional Perspectives