3. Follow your stop-loss levels

If you own shares, you need to have in mind a stop-loss for every stock you own. Just as important, if a stock you hold hits your stop-loss level (the lowest price at which you’re willing to sell to limit your losses if a stock falls), sell. You can’t make money by investing if you don’t have money to invest.

A stock that’s down 50 percent has to double before you get back to breakeven. How often have you invested in a stock that’s doubled? Probably not often enough to count on it. It’s much better to have a stop loss level that’s (say) 25 percent below where you bought the stock (and raise the actual stop-loss level as the share price rises) than to be out of the game.

4. Hold cash

Everyone would be smart to have more cash in their portfolio. Yes, it doesn’t pay much, its value erodes over time (due to inflation), and if you lose it (or put it through the washing machine), it’s gone forever.

But, over the short term – like the next year or so – the value of your cash stays constant (unless you live in Venezuela or Zimbabwe). And the value of your cash won’t change if markets crash.

Holding cash is one of the easiest ways to hedge your portfolio. Hedging helps reduce investment losses when your investment strategy doesn’t work out as planned.

Plus, having some cash on hand lets you take advantage of any great investment opportunities that may come up. It lets you pick up “money lying in the corner.”

So protect your portfolio by taking some profits off the table to raise some cash.

5. Don’t think your VIX ETF will rescue you

The VIX – sometimes called the “fear index” – measures demand for options in S&P 500 stocks used by big investors to insure their stock portfolios against loss. A high VIX reading indicates investors expect high volatility in coming weeks, and their demand for insurance is driving option prices higher.

But unlike the S&P 500 or other indices, there’s no way to invest directly in the VIX index. Of course, that hasn’t stopped financial engineers from creating derivative products that try (mostly unsuccessfully) to track the VIX.

VIX futures and options on futures have been around for years. However, futures in general are risky – and futures on volatility even more so. These instruments are only for experienced traders who can afford to lose their entire investment very quickly. (Tama recently showed how shorting the VIX through a VIX ETF recently blew up in investors’ faces.)

It’s easy to suggest buying a VIX ETF to protect your portfolio in case volatility picks up. A crashing market=higher volatility=great portfolio insurance from a VIX ETF, right?

But as I’ve written before, ETF-like VIX products have some of the worst performance in history. Unless you choose exactly the right moment, you’re assured to either blow yourself up quickly… or slowly.

In short, if you’re buying VIX ETFs, you might as well go gamble.

To sum up, following these five tips will help you prepare for whatever is coming next for the markets.

Good investing,

Kim Iskyan
Publisher, Stansberry Churchouse Research

*This has been a guest post by Stansberry Churchouse Research*

 Related: Here’s How to Handle a High-Volatilty Market.