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It's Time to Consider Portfolio Insurance

NEW YORK (TheStreet) -- The reason people buy auto and home insurance before they find out they will need it is because by the time you find out you need insurance, the damage is already done. If you've ever been involved in a car accident, you know you can't add coverage when it becomes obvious you're about to crash.

The same is true with the stock market. You never know when the market is about to have a correction or an outright crash. For most investors, including those on Wall Street, there's never enough notice to adjust after the fact.

As you can with your home and auto, you can buy portfolio insurance -- and the best part about the market is you can time it to when you are most at risk.

The market provides us warning signs when a correction is more likely than normal. Some are emotional; for example, when people who never talk about stocks begin letting everyone in the neighborhood know about how much money they're making, that's a sign.

Another emotional sign comes from self-reflection. If you're feeling like you should "juice" your returns by using more margin at a time when record amounts of margin is used (which is the case right now), that's a sign.

When stock valuations reach well outside historical norms, especially in relation to earnings, that's another sign. Another is when JPMorgan Chase (JPM) analysts start giving $300+ price targets for automakers that are unprofitable based on projected earnings six years from now from factories that are in the planning stage, that's a sign. (If you're unsure what company, it's Tesla (TSLA).)

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AAPL $93.24 0.00%
FB $117.81 0.00%
GOOG $701.43 0.00%
TSLA $211.53 0.00%
YHOO $36.94 0.00%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

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