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Billionaire Mark Cuban is famous on Wall Street for protecting a $1.4 billion stake from the 2000 stock market crash with a savvy options trade. “The whole market cratered and I was protected,” Cuban told Howard Stern in 2013.
Unfortunately, not everyone was so prepared on August 2, when the dow plummeted almost 1,000 points. Despite the market being on its way to recovery, Cuban’s story from the 2000 crash is still worth noting.
In 1999, Cuban and his business partner Todd Wagner decided to sell their online streaming company, Broadcast.com, to internet giant Yahoo. The firm was acquired for $5.7 billion, and since Cuban held roughly one-third of the company, he was instantly a billionaire.
There was only one problem — Yahoo had not paid Cuban and Wagner in cash. Instead, the deal involved Yahoo stock, which was surging while the mania surrounding tech companies grew. It seems Cuban was spooked by the inflated valuations, predicted the bubble would burst at some point, and decided to take steps to protect his payout.
“I did a hedge,” Cuban told Stern. “I sold calls, bought puts, so I protected my stock … It went up in value some more, and went up to where my hedge was and cashed me out.”
In other words, Cuban effectively locked in the value of his Yahoo stock at the time. Six weeks later, he says, the market crashed.
Cuban’s move highlights how wealthy investors think about downside risk. And while the markets may already be bouncing back from the most recent crash, it is smart to be prepared should it happen again.
Here are three ways regular investors can work to protect their wealth from another crash and help mitigate the damage done by the most recent one.
Cash and cash equivalents (savings, checking and money market accounts, and short-term investments) are thought to provide liquidity and safety. A robust emergency fund protects you from having to sell your investments at a possible loss when the market is struggling. According to the U.S. Bank, a general rule of thumb is that cash and cash equivalents should comprise between 2% and 10% of your portfolio.
If you’d like to lock in your emergency fund in a safe, high-growth short term investment, one option to consider is opening a CD.
CDs — or certificates of deposit — are a type of savings account that pay a fixed interest rate on cash you save for a set period of time, so you have the chance to earn high interest on your savings in just months.
You can also find checking accounts with higher interest rates than you might think.
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Economists such as Peter Shiff and Alan Greenspan have always considered gold a hedge against inflation and economic chaos. While currencies can lose value, tangible assets like precious metals are thought of as stores of value and safe havens.
Analysis by investment firm Sprott says that gold has appreciated by an average of 13.98% during seven crisis periods since 2007-2009, while the S&P 500 Total Return Index has lost an average of 9.6% during these periods.
Holding a small gold position could add a buffer to your portfolio and a gold IRA is a way to do just that.
One way to open a gold IRA is with the help of Priority Gold.
Gold IRAs allow investors to hold physical gold or gold-related assets within a retirement account, which combines the tax advantages of an IRA with the protective benefits of investing in gold, making it an attractive option for those looking to potentially hedge their retirement funds against economic uncertainties.
To learn more, you can get a free information guide that includes details on how to get up to $10,000 in free silver on qualifying purchases.
For several years, fixed income securities were the most boring asset class on the market. The Federal Reserve held benchmark interest rates at a historic low, nearly zero, after the Great Financial Crisis of 2008. That changed in March 2022 as the Fed started raising rates to fight inflation. Now the benchmark rate is at 4.50%.
A 10-year government treasury bond now offers a 4.3% yield. This means you can lock in a fixed return for 10 years with very little risk. Bonds are once again a potential safe haven asset worthy of attention.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
