Ask Matt: Can I protect myself from the sell-off?
Q: Can I protect myself from a sell-off?
A: The Federal Reserve put investors on warning. Free money is going away. Investors know rising interest rates aren't great for stocks - but it doesn't have to be lethal.
Investors initially rejoiced when the Fed finally boosted short-term interest rates. The fact the Fed felt confident enough in the economy was an initial plus. But now - reality is setting in. The fact is consumers will start to see higher credit card rates in just a few months. Many companies, too, will face higher borrowing costs in a few years.
Economic realities need to be baked into stock prices. Stocks correct by 7% following the first rate hike on average, says Credit Suisse. Investors who are really worried about this can buy financial tools called "protective puts." These financial tools act like insurance on your portfolio. Protective puts allow you to pay to put a floor on how much you'll lose on a stock.
But if you're this worried about your portfolio - your portfolio isn't right for you. There are ways to reduce the risk of your portfolio without buying puts. Consider adding different types of stock investments such as international, value-stocks and bonds. Also, make sure you have enough cash so you can afford to be a long-term investor, not a trader.
Paste BN markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.
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