Jim Cramer doesn't expect a second Korean War to break out over North Korea's nuclear-weapons program, but says smart investors should take two steps to profitably play today's geopolitical tensions.
"I still don't believe there's going to be a war -- but that doesn't mean that you won't feel like there is one," Cramer said in this latest monthly conference call with members of his Action Alerts PLUS club for investors.
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The expert recommends you:
Keep Cash on Hand
Cramer suggests keeping 10% to 15% of your portfolio in cash to serve as both a hedge against risk and the capital you'll need to buy quality stocks that dip on any Korea-related broad-market pullbacks.
"We [must] be as ready as you can possibly be in these instances," he said. "The only way to be ready? Cash -- that's the best hedge."
Snap Up Good Stocks on Any Market Jitters
"We are banking on a peaceful resolution and will stay that way until our country issues a statement saying non-essential U.S. personnel should leave South Korea," Cramer said. "[But] until then, I think the issue will ebb and flow -- and when it ebbs, we'll be a little tempted [to buy] if the market's down."
For example, Cramer said he'll use any significant Korea-related pullback to boost his charitable trust's stake in Pepsico (PEP) , which the stockpicker called "the long-time best-in-breed company in the food-and-beverage industry."
"You need to actually be rooting against some of your stocks ... so you can [get] bigger on a broader market decline, like a North Korean decline that has nothing to do with PepsiCo," Cramer said.
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