3 Safe-Money Moves to Ride Out Evergrande-Sized Impacts
China Evergrande Group. Ever hear of it?
Unless you live in China — or invest actively in its markets — chances are the answer is no.
At least, it would have been “no” before speculation about its potential collapse triggered a worldwide sell-off in risk assets on Monday.
Evergrande is a massive player in the Chinese real estate market. It aggressively expanded into all kinds of businesses in recent years. And now it’s reeling under the weight of more than $300 billion in debt.
Some of its bonds are trading for just 25 cents on the dollar, while its shares have plunged a whopping 85% year to date.
• Global markets were content to mostly ignore the story ... for a while.
But this week served as a major wake-up call. The weakness … previously confined to more economically sensitive sectors … had a ripple effect, spreading like wildfire Monday, and the Dow Industrials dropped more than 900 points intraday.
But if there’s one thing you can count on in the markets, it’s that traders have a short attention span. And sure enough, as U.S. traders turned their sights closer to home Tuesday, stocks managed to hold their ground.
• Stocks’ next move will largely be determined by what happens after the Federal Reserve policy meeting wraps up later today.
If the Fed uses Evergrande-driven volatility as a reason to further delay its quantitative easing (QE) tapering date, stocks could rally. If it doesn’t, volatility could get worse.
But REGARDLESS of what happens in the near term, there’s a bigger lesson here: You NEED to stick to “Safe Money” investing strategies in markets like this.
Safe Money Move 1: Keep a reserve of CASH on hand to take advantage of corrections and sell-offs.
Most mutual funds hold very little cash, often just a couple of percentage points of fund assets. That’s great when markets are in full-on bull market mode … but not so great when they aren’t.
If you’re always 100% invested and don’t take it upon yourself to keep some cash in reserve, shocks like this one can catch you flatfooted.
You won’t just lose more money, but you also won’t have any cash on hand to take advantage of the cheaper prices pullbacks give you!
Safe Money Move 2: Target assets besides stocks.
Do you know what did fine even as the Dow plunged over 900 points?
The SPDR Gold Shares (NYSE: GLD) ROSE 0.7% on Monday. For its part, the iShares 20+ Year Treasury Bond ETF (NYSE: TLT) popped 1.2%.
I ALWAYS recommend that my subscribers maintain a margin of safety when they invest.
Safe Money Move 3: Don’t forget to take profits ... and invest in stocks with built-in advantages.
Outside of a few favored sectors, the market’s struggled with weaker breadth since summer. That’s one reason I’ve recommended Safe Money subscribers take some profits off the table over the past few months.
It’s also why I will keep focusing on stocks with high Weiss Ratings, more generous yields and other attributes that give investors that critical margin of safety.
And it’s why companies with strong business tailwinds — like those in Martin’s critical three-part Future Shock 2021 video series — are so important to learn about. Click here for the Future Shock e-book while you still can.
I don’t know when the next version of an Evergrande sell-off will happen ... or if a Fed surprise might knock stocks for a loop.
But I DO know that if you maintain a “Safe Money” investing approach, you’ll be in much better shape to ride it out … and prosper on the other side!
Until next time,