This method would take more work and involve more risk, however in times of "uncertainty," being fully invested in a
market neutral portfolio can hedge out the downside risk you fear...
http://www.investopedia.com/terms/m/marketneutral.asp?optm=sa_v2This form of portfolio management would most likely go against the grain preached on this thread, as it is more active and requires you to you have your finger on the pulse of the "market."
So for example if you had $100,000.00 to invest.
To maintain a market neutral portfolio you could:
Buy $50,000 of VOO (giving you exposure to the overall market)
You then find a rather weak sector/sectors.. ones that have been and most likely will underperform the broad market.
You then short $50,000 of said weak sector.
So in practice:
Say you buy $50,000 worth of the Vanguard S&P (VOO) and sell short $50,000 worth of Energy Select Sector SPDR ETF (XLE).
If Vanguard S&P (VOO) climbs 10% and Energy Select Sector SPDR ETF (XLE) falls 10%, you make $10,000. (That’s 10%, or $5,000, on each $50,000 position.)
If Vanguard S&P (VOO) climbs 10% and Energy Select Sector SPDR ETF (XLE) also climbs 5%, you make $2,500. (That’s a $5,000 gain on Vanguard S&P (VOO) and a $2,500 loss on the Energy Select Sector SPDR ETF (XLE) short position.)
And, if Vanguard S&P (VOO) drops 10%, but Energy Select Sector SPDR ETF (XLE) also drops 15%, you also make $2,500. (That’s a $5,000 loss on Vanguard S&P (VOO) and a $7,500 gain on Energy Select Sector SPDR ETF (XLE).
The only way you lose on this market neutral position trade (often called a “pairs trade”) is if Energy Select Sector SPDR ETF (XLE) outperforms Vanguard S&P (VOO).
This is just surface level stuff... obviously dividends etc will alter the alpha generated by this strategy.