Is there a way to protect your returns when markets fall?
Some might suggest market timing (trying to get in and out by picking market peaks and troughs). Others would have you use options to cover you against unexpected declines.
Will the super-rich investors who used these methods to become super rich please raise their hands….
The vast majority of investors who made serious money probably didn't do it those ways. We mere mortals have to understand there will always be market declines like it always gets cold in the winter. Yet if you're prepared for the freezing and snowy weather, you're fine.
I have three stocks that could help bulletproof (and weatherproof) your portfolio for when dark clouds hang over the market. They are in businesses that keep on ticking away even when the economy is less than sunny.
1) Ramsay Health Care Limited (ASX: RHC) operates the largest network of private hospitals in Australia. There's usually no shortage of the sick and injured, so the business of caring for patients is quite stable and growing. The company just celebrated its 50th year in business and shareholders are probably just as pleased with the average annual 40% total return they received. Ramsay Health Care is now also the largest private hospital operator in France and is expanding into China. Earnings are forecast to grow in the double digits for the next several years. A defensive stock with growth qualities makes it a good addition to your portfolio.
2) Challenger Ltd (ASX: CGF) manages investments for clients who want to prepare for retirement with superannuation and supplementary income streams. The company is a leader in annuities, which guarantee a certain level of income in the future through investing a lump sum of client funds now. Challenger has also expanded its business to provide service to self-managed super fund (SMSF) owners to maximise earnings in a tax efficient way. The company is an attractive long-term play in the huge superannuation industry.
3) REA Group Limited (ASX: REA) might be said to be "as safe as houses" since it is the overwhelming market leader in real estate listing advertisements in Australia. Its realestate.com.au website is used by property hunters and I myself have used the website to find my investment properties in the past. With net profit margins and return on equity usually around 30%, the company is a strong profit generator. The main attraction for long-term investors is the steady demand for property advertising, whether the property market is up or down, and the solid fees the company can command for its services.
