CRASH PROTECTION

If you cannot liquidate vulnerable stocks, consider these steps:
Step 1: Learn more about reverse index funds. If you put money in a typical stock market mutual fund, the managers will generally invest it in various stocks that
they pick, depending on their research and opinion of the market.Index mutual funds are more restricted. The managers’job is strictly to buy stocks or other instruments to match,as closely as possible, the performance of a particular stock market index, such as the Dow Jones Industrials, the S&P 500 or the Nasdaq 100. Reverse index mutual funds use the same principle—but in reverse. Instead of helping you make money when the market goes up, they are designed to help you make money when the market goes down. They invest a good portion of your money in safe instruments, such as Treasury bills, to generate interest income. Plus, they allocate a portion to investments, such as futures and options, that appreciate as the market goes down, balancing the exact quantities of these instruments so that
■ There is always enough cash and equivalent in the fund to cover any losses. You cannot lose more than you invest.
■ The fund matches the performance of the index in reverse. If the market goes down, you will make a profit; if the market goes up, you will incur a loss
Step 2: Evaluate your remaining stock portfolio. Is it almost entirely tech stocks? Or is it mostly blue-chip and other stocks, with just a small amount of techs?If you have blue-chip or other stocks that you can’t sell, consider placing a modest portion of your money into shares of the Rydex Ursa fund or quivalent. That way, if your stock portfolio is falling, your Ursa shares will be rising, helping to offset the loss.If you have a large portfolio of tech stocks that you can’t sell, you should buy shares in the Rydex Arktos fund. That way, even if your tech stocks fall still further, at least your Arktos shares will be rising, helping to offset the loss.
Step 3: Estimate your risk of loss. No one knows for sure whether the stock market is going up or down—let alone how much or how quickly. But based on recent history, it is not unreasonable to assume that a stock portfolio could fall 50 percent. If your portfolio is worth about $100,000 at
Step 4: Decide how much of that risk you want to protect yourself against. If you wanted to protect yourself against the entire amount, you’d have to invest about dollar for dollar in one of the reverse index funds. If that is too much, consider covering half your portfolio. Then, for every $1 of current value in your stock portfolio, you would simply put 50 cents of your money into the appropriate reverse index fund (see Step 1). Assuming that your stock portfolio is worth $100,000, you’d be investing about $50,000 in the fund.
Step 5: Raise the funds for your crash protection program. Where do you get the extra $50,000? You could take it from your cash assets. But if you did, you would in effect be moving money from a safe investment to a more aggressive investment. That may not be prudent. Instead, a prudent alternative is to liquidate at least enough from your remaining stock portfolio to finance this program.
The formula is simple: If you want a program that will protect you against half your risk, and you don’t want to take money from another source, you should liquidate one-third of your shares to generate the money.
Taken From Crash Profit - Martin Weiss