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Earlier this week I wrote about investments that are not correlated with the stock market. Now that the stock market has gone down significantly articles about the exceptional funds that performed well during the 2008 bear market are abundant. This is a good time to collect information about funds that are non-correlated with the stock market and have demonstrated an ability to perform well during stock market declines.
I suggest keeping a file labeled “Bear Market Strategies”.
Articles on the best bear market performers usually appear after or near the end of the bear market not before since past performance dictates the recent top performers. These are the funds that get the most attention in the media. During strong bull markets funds that are not correlated to the market tend to under perform the overall stock market. This can make it hard to hang onto such funds during strong bull markets but doing so pays off after the bear market returns which it always does in time. This is a simple fact.
Following the recent near 35% recovery in the stock market this may not be the best time for non correlated funds or perhaps it is. No one knows for sure. It may be wise to always allocate a certain amount of your portfolio for assets that are negatively correlated with the stock market. Alternatively investors may choose to let the market work its way into bull market territory for a couple of years and then invest a portion of their portfolio in such funds. Either way your overall portfolio plan should determine your timing strategy not your emotions. The primary factor is that non-correlated investments will go up when most everything else is going down and that is good insurance for any investment portfolio.