Don't Let Fears of Stock Market 'Volatility' Kill Your Portfolio

NEW YORK (TheStreet) -- On Friday, T. Rowe Price sent an email that offered ways "to cope with market volatility." They relay these missives occasionally to calm frayed nerves they think exist among retail investors.

On the same day, I received Charles Schwab's monthly investing magazine. On page 17, it offered "Popular Strategies for Trading Currencies."

Talk about an exercise in contrast.

I cannot comprehend why anyone would suggest currency trading as a way to diversify or hedge a portfolio, particularly in a publication from a solid firm like Schwab. You might as well hedge via sports betting. For most investors, currency trading does not end well.

Don't do it. Definitely don't do it as a strategy to complement or supplement your long-term approach. And, most of all, don't respond to this inane fear of volatility by "diversifying" or "hedging" with something as risky as currency trading.

Do you really need to worry about "volatility" any more today than you did in previous years? Should you look for extreme ways to "diversify" or "hedge"? Or, should you simply stick to the basics because, let's face it, most of us will never achieve true diversification and be fully hedged to begin with.

Even if it's somehow possible, I'm not sure you need to waste time finding ways to "cope with volatility." And you certainly do not need to combat volatility, underperformance or whatever by trading currencies.

Instead, buy dividend-paying stocks and write covered calls.

That's both a short- and long-term strategy that hedges and takes the sting out of not-so-stellar stock picks. Because, after all, whether in a bullish, bearish, volatile or calm, cool and collected market, it usually boils down to picking good stocks, unless you put your fate in the hands of index funds.

Late 2008 to early 2009 could go down as one of the most volatile periods in recent memory. We experienced some wild gyrations during the summer and early fall of 2011. You do remember the many triple-digit drops in the Dow followed by one-day rallies often led by Apple (AAPL) and Amazon.com (AMZN)?

If you rode out the last five years with AAPL and AMZN, you're in excellent shape today. Not so much if you opted to buy and hold Cisco Systems (CSCO), Hewlett-Packard (HPQ) or Intel (INTC).

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