As you probably noticed, last week was volatile for stocks…

All major indexes closed in the red. And the Dow averaged intraday swings of 460 points—including a 767-point drop last Monday, its worst day of the year.

The volatility continued into Monday, with all major indexes down for the day.

This whipsaw action can make even the most experienced investors dizzy. But regular readers know we’ve been through this ride before.

And we’re covered—no matter where the market zigzags.

You see, at PBRG, we don’t base our investment strategy on daily market moves or random tweets.

Instead, we’re disciplined in protecting our portfolios—by using an asset allocation model… stop losses… and position sizes.

Plus, we recommend more asset classes than any other newsletter in America. This diversification will give us plenty of upside opportunity.

And with volatility likely to continue, now’s a good time to check your portfolio’s health. So today, I’ll share six criteria you should “stress-test” for…

But first, let’s see what’s going on…

The Trade War Is Back On

Earlier this month, President Trump threatened 10% tariffs on another $300 billion in Chinese goods—which could go into effect as early as September 1. He’s even hinted at a raise to 25%.

And last Friday, he said the U.S. would cut ties with Chinese telecom giant Huawei unless a trade deal is reached.

Now, a currency war could be next. In retaliation, China’s central bank pushed down its currency (the yuan) to its lowest level versus the dollar in over a decade.

Plus, Trump is calling for “bigger and faster” rate cuts from the Fed. This spooked investors further. The Volatility Index (the market’s fear gauge) jumped as much as 40% last week.

But as Daily editor Teeka Tiwari wrote last week, you should expect more volatility in the short term:

I’m on record as saying President Trump is absolutely correct to say, “No more!” He’s simply trying to even the playing field.

But none of it matters… I still believe a trade deal will be worked out at some point. And stocks will continue their long-term uptrend.

However, volatility is the new normal. You just have to get used to it. That’s why I’ve been recommending alternative assets that provide income to defend against volatility in the stock market.

And while now’s a good time to diversify your assets, there are other steps to ensure the overall health of your portfolio…

Your Six-Step Portfolio Stress Test

At PBRG, we’ve developed an investing plan to keep us grounded even in the most volatile markets. If you stick to it, you’ll avoid the common mistakes the average investor makes.

So run your portfolio through the six-step checklist below. You’ll be prepared for anything the market throws at you…

  • Diversify your portfolio. Numerous studies show that asset allocation accounts for more than 90% of your investment returns. Plus, greater diversification results in lower risk. So consider owning a mix of domestic and foreign stocks, bonds, commodities, real estate, and gold.
  • Add alternatives to the mix. Be comfortable with being uncomfortable. In other words, think outside the box. Get some exposure to “true” alternatives like collectibles, cryptos, private placements, and annuities. They’ll generate long-term outperformance while shielding your portfolio.
  • Keep some extra cash. Cash is often a forgotten asset class. But it gives you optionality. You never know what opportunities life might throw at you. But whatever they are, cash typically “meets the need” better than anything else. So it’s crucial to hold some. And we recommend allocating up to 10% to cash.
  • Check your position sizes. Position-sizing refers to the size of a position within your portfolio (or the dollar amount you’re going to trade). Our simple rule of thumb is: If an investment gets stopped out of your portfolio, your maximum loss should be no more than 2.5–5% of your portfolio’s value.
  • Check your stop losses. Stop losses let you control how much you’re willing to lose… eliminate emotion (an investor’s greatest enemy) from sell decisions… and protect your investments from devastating losses. We have a stop loss attached to almost every recommendation.
  • Focus on safe companies. Invest in companies with quality balance sheets, attractive valuations, solid earnings, and better growth prospects.
  • We use this same stress test in our flagship advisory, The Palm Beach Letter. Since launching in April 2011, our portfolio has achieved annualized returns of 124.8%.

    In comparison, an investment in the S&P 500 ETF (SPY) returned just 11.7% per year over that time.

    So our Palm Beach Letter portfolio has done 10 times better than the S&P 500—with 20% less volatility.

    This checklist has served us well in the past. And it’ll continue to do so going forward. We suggest you print it out and keep a copy handy.


    Grant Wasylik
    Analyst, Palm Beach Daily

    P.S. If you’re a Palm Beach Letter subscriber, you can read our entire asset allocation issue here. And if you’re not yet a subscriber, you can find out more about our favorite asset classes—including alternatives like collectibles—right here