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Bulkowski’s 7 Ways to Protect Your Assets

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Candles Chart
Small Patterns
As of 02/19/2019
  Industrials: 25,891 +8.07 +0.0%
  Transports: 10,618 +49.99 +0.5%
  Utilities: 743 +4.68 +0.6%
  Nasdaq: 7,487 +14.36 +0.2%
  S&P 500: 2,780 +4.16 +0.1%
Tom's Targets    Overview: 02/14/2019
26,000 or 24,600 by 03/01/2019
10,900 or 9,900 by 03/01/2019
755 or 725 by 03/01/2019
7,700 or 7,050 by 03/01/2019
2,825 or 2,650 by 03/01/2019

Written by and copyright © 2005-2019 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Some pattern names are the registered trademarks of their respective owners.

  1. 401k
  2. Covered calls
  3. Put options
  4. Short ETFs
  5. Cash
  6. Money market funds
  7. CDs


If you are invested in the stock market, whether through individual stock ownership or through a 401K or other retirement vehicle, you will want to protect those assets. How do you do that? Here are some thoughts, but you will want to check with an expert and do your own research before making changes to your financial empire.

1. 401k

Many times funds are invested in the company’s stock but sometimes retirement plans give you the option of investing in other securities, such as mutual funds. While you may believe that your company will be the next Google, it can also become the next Enron (bankrupt).

It pays to diversify.

Talk to the department in your company that handles your retirement funds and see what investment options you have. If possible, do not allow your 401k to become top heavy in stock of the company you work for. Otherwise, should the company run into trouble, so could you.


2. Covered calls

If you expect a stock you own to move little or drop some, then perhaps a covered call is the way to go. It gives the option buyer the right to purchase your stock at a set price. If the stock is below the strike price at expiration, the option expires worthless and you get to keep not only premium you charged for that right but also the stock. If the price is above the exercise price at expiration, you will be forced to sell the underlying stock, but you get to keep the option premium.

Conservative investors use covered calls to boost their investment returns.

Before you write (sell) a call, be sure that you won’t mind selling the underlying stock should the price of the stock rise. Think of the tax implications (short term versus long term holdings). Not all stocks are optionable.

Do not get enthusiastic about covered calls and start selling naked calls. That means you sell a call in a stock you don't own. Yes, you collect the premium, but should the stock soar, you will be stuck at buying the stock at a price higher than you paid.

If you are unfamiliar with covered calls, then do research on options before selling a call. For example, if you owned 100 shares of IBM, you would not sell 100 call options because one option covers 100 shares.

3. Put options

If you own a stock and want to protect it in case its price declines, consider buying a put. A put gives you the right to sell the stock at a certain price for a limited time. Use puts instead of calls when you fear your stock could drop substantially. An investment consultant I spoke with suggests taking 10% of the stock’s price and subtracting that from the current price to get the strike price with an expiration date 2 months out. The downside of puts is that they can expire worthless and cost money to buy in the first place. Think of put options as a limited time insurance policy, but an expensive one.


4. Short ETFs

I have mentioned these many times in my blog and have traded them when I thought the market was going to drop. If you cannot write an option on a utility stock you own, for example, then there is a short ETF that covers utilities: UltraShort Utilities ProShares (SDP). Go to yahoo!finance, Investing tab then ETFs, View ETFs by fund family, then select ProShares trust for the fund family. Up will pop 64 funds (at last count) to choose from. I would avoid the low volume ones unless you have a special need. If you see the word "Ultra" in the title, that usually means the fund is twice as volatile (leveraged) as the underlying securities. So, you can make or lose a lot twice as fast as normal. For that reason, trade these with care.

Also, recognize that the ultra series and even the more leveraged ETFs (there are 3x leverage available now), that are best as short-term vehicles. Holding them for the long term will likely not give you the return you expect. I blogged about this tracking error in February 2009.

5. Cash

This is one of my favorites. Rarely am I completely invested in the stock market. With my core "buy-and-hold" stocks (usually utility stocks), I keep them and usually ride out the downturn because I may hold them for years, collecting their dividends. With my other stocks (position trades or swing trades), I just sell them as they hit their profit targets or get stopped out. Then I remain in cash.


6. Money market funds

This is where you park your cash when it is not invested. As the holders of the Reserve fund found out, money market funds can break the buck. That means a dollar invested in the fund could return less than a buck when you want to withdraw it.

To help avoid that, check to see if the fund has a parent company. Often the parent will pump cash into the fund so it maintains $1 a share. The Reserve fund had no such parent, so breaking the buck was a lot easier for them (which they did, returning something like 97 cents for every dollar invested). Recently (in 2008) the government offered insurance protection to money market funds and many of them opted to buy it. I think that is a temporary fix to the financial crisis, so it could expire.

And while you are at it, make sure your broker is covered by SIPC and has additional insurance to cover any shortfalls. If they bought additional insurance of $10 million and they have a million customers, the insurance won't go far unless it covers each account separately, so keep that in mind.

7. CDs

This is another method of parking your cash, and I would not mention it except that if you own a CD, make sure it is worth less than $100,000 (or $250,000, depending on the FDIC insurance maximum. It was raised on a temporary basis recently).

If considering buying a CD over that amount, then I suggest you spread it around to as many banks as necessary so that each CD is fully insured by the FDIC. And also verify that your bank is FDIC insured. Some are not.


I do not consider this a viable asset protection scheme, but I want to share a news item with you. A woman, I think in England, stuffed her mattress with money during her life. As a surprise, her sons bought her a new mattress, and threw out the old one, not knowing it was full of cash. At last report, they were still searching for it at the landfill.

-- Thomas Bulkowski


See Also

Written by and copyright © 2005-2019 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Some pattern names are the registered trademarks of their respective owners. Quality control: The process of testing one out of every 1,000 units coming off a production line to ensure that at least one out of 1,000 works.