Three Top Ways to Protect your Portfolio in War
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In late May 2019, tensions were rising between U.S. and Iran.
At the time, President Trump tweeted, “If Iran wants to fight, it will be the official end of Iran. Never threaten the United States again!”
Along with that, the U.S. has already deployed warships and planes to the Gulf.
In return, Iran has said that “genocidal taunts won’t end Iran.”
While nothing is a guarantee, it’s always a good bet to consider how we can protect our portfolios in the event of a war.
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No. 1 – Do what Buffett would do
Historically, doing nothing during times of crisis has been the best investment strategy. Such crises inevitably lead to panic selling, as we saw in early August 2017. And as we’re all aware the worst thing you can ever do is sell anything into fear.
Or, if you’re a contrarian, you can use the weakness as a buying opportunity.
Warren Buffett uses the fear of war as an opportunity. As he once noted:
If you tell me all of that's going to happen, I will still be buying the stock. You're going to invest your money in something over time. The one thing you can be quite sure of is, if we went into some very major war, the value of money would go down -- that's happened in virtually every war that I'm aware of. The last thing you'd want to do is hold money during a war. So if you don't want to hold cash, what do you want to own?
In times of chaos, Warren Buffett tells us to be fearful when others are greedy, and greedy when others are fearful. Baron Rothschild teaches us to “buy the blood in the streets” and Sir John Templeton teaches us to buy excessive pessimism.
No. 2 – Trade the Long Side of Volatility
One way to trade the current situation is by shorting volatility with the fear gauge for example.
We can use the following:
- iPath S&P 500 VIX Short-Term Futures (VXX)
- ProShares Ultra VIX Short-Term Futures (UVXY)
- VelocityShares Daily 2x VIX Short-Term ETN (TVIX)
No. 3 – Buy Defense ETFs
While we can always buy Raytheon, Boeing, General Dynamics, Northrop Grumman, and United Technologies, such ETFs offer us the exposure to all of them at a cheaper cost.
SPDR S&P Aerospace & Defense ETF (XAR)
The SPDR S&P Aerospace & Defense ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Aerospace & Defense Select Industry Index. It has holdings in Axon Enterprise Inc., Textron Inc., and Orbital ATK Inc. for example.
iShares U.S. Aerospace & Defense ETF (ITA)
The iShares US Aerospace & Defense ETF invests in stocks in the domestic aerospace and defense sector. These stocks can include companies that manufacture both commercial and military aircraft as well as other types of defense-related equipment. It has holdings in Boeing, United Technologies Corporation, Lockheed Martin, Raytheon, General Dynamics, and Northrop Grumman for example.
Power Shares Aerospace & Defense ETF (PPA)
The Invesco Aerospace & Defense ETF tracks a market-cap-weighted index of US-listed stocks involved in the defense, military, homeland security and space industries. It has holdings in Boeing, United Technologies, Honeywell International, Raytheon, and General Dynamics.
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