Last week’s severe market drop was felt around the world. Despite a solid rebound today, it’s still too early to say with any certainty if the correction is behind us.
Many investors feel that proper diversification will protect them from sharp corrections in the market. Last year’s drubbing during May/June 06 and last week’s global down turn had one thing in common: There was no place to hide. Even traditional hedges such as gold (IAU) and commodities (DBC) were down for the week -6.06% and -1.71% respectively.
Looking at extremes, the worst performer was Malaysia (EWM), down -12.04%, while utilities (XLU) dropped only -1.32%.
The point is that the world, and with it all financial markets, has become such an intertwined place that there is no longer a safe haven to move your money into.
Your best bet is to have a sell stop discipline in place that will get you out of the market and into the safety of a money fund, should a trend reversal occur. This will at least give you a chance to avoid serious damage to your portfolio rather than staying invested and simply hoping for the best.