No one I know enjoys buying insurance.
Sure, you get the “peace of mind” you were sold when you bought the policy. But beyond that, owning insurance is a pretty thankless endeavor. You watch the auto-debits hit your bank account each and every month… and for what!?
“I haven’t had a car accident in 10 years!” you think.
“I’m healthy – I passed my last health check with flying colors!”
Who needs all this stinking insurance, anyway!?
Worst of all, most insurance policies offer NOTHING in the way of potential “reward.”
At best, they’ll reimburse you if you wreck your car… or take care of your family if you pass away prematurely… but for most insurance policies, you’re not looking to make a profit.
Stock-market insurance, though, is a much better deal.
When you buy stock-market insurance (as I’ll show you how to do in a minute!), you face three potential outcomes. In order from worst to best:
- You don’t end up needing it… and you waste your purchase money.
- Your insurance policy “pays out”… but only enough to make you whole, by covering the losses in your stock portfolio.
- Or, you PROFIT from your policy!
Only with stock-market insurance is scenario #3 even an option! Car and life insurance policies can’t hold a candle to that.
And last year… it’s the exact scenario that played out for my Cycle 9 Alert subscribers.
I recommended buying a specific insurance policy on May 26. And by September 1, I told them to “cash out” – locking in a net profit of 165%. That means for every $10,000 worth of insurance they purchased, they could’ve walked away with $26,500.
Mind you, Cycle 9 Alert subscribers were already having a profitable year by time the summer season rolled around, when many investors choose to “sell in May and go away.” But it’s my job to make sure readers protect those gains… and keep them positioned for windfall profits.
Turns out, that insurance policy boosted our profits by more than 40% last year!
Here’s a simple chart that shows the profits Cycle 9 Alert subscribers could have accumulated in 2015 without the insurance policy ($37,700)… and with the insurance policy ($54,200). All figures assuming a $10,000 investment per position.
As you can see, that stock-market insurance policy was certainly worth buying – it paid out big last year!
Of course, it doesn’t always work out this nicely. But more times than not… it does.
You see, most people that buy insurance hold it for a full year or longer.
That might make sense for an auto policy – how can you predict which month you’re going to need it? You can’t!
But the stock market is far more predictable. I know because I’ve done the research…
For one, volatility tends to rear its ugly head during the summer months. My statistical analysis shows that volatility spikes of 30% or greater occur at a far greater frequency in June, July and August… than in any other month.
And when volatility does decide to make an appearance, the magnitude of volatility spikes are also much greater in June, July and August.
What this research is getting at is this…
It doesn’t necessarily pay to hold stock-market insurance the full year-round. For most months of the year, the reward-to-cost ratio isn’t all that favorable.
But buying stock market insurance for June, July and August is a much wiser move.
There’s no guarantee you’ll need it each and every year. But in the long run, it’s a prudent, cost-effective way to protect your stock portfolio through the rocky summer months. And you might even position yourself for a windfall profit!
I call this “targeted protection.”
You’re not paying for protection all 12 months of the year… just the three or so months that, historically, have warranted an added layer of safety.
One way to buy this stock-market insurance is by purchasing shares of the iPath S&P 500 Short-Term VIX ETF (ARCX: VXX). This is an ETF you can purchase in your regular brokerage account. It tracks the volatility index (aka, the “VIX”), which tends to shoot higher when stocks are falling.
Now, a word of warning: this vehicle is not without its drawbacks. And I do NOT recommend holding it for long periods.
But it does give you an easy way to buy stock-market protection for narrow windows of time.
This isn’t the exact stock-market insurance policy I recommended to Cycle 9 Alert readers last May (but it’s very similar).
And in full disclosure, I haven’t issued this year’s “insurance” recommendation just yet.
Those details are only available to Cycle 9 Alert members.
Still, if you’re heading into the summer with even an ounce of concern over your investment portfolio, I highly recommend “insuring” yourself for a potentially rocky road ahead.
Adam O’Dell, CMT
Chief Investment Strategist, Dent Research