Investors have been faced with some volatile market swings recently, and there are risk factors on the horizon raising questions about what comes next. Market sell-offs can be painful and are often cause for added stress in already complicated times, but there are steps you can take to protect yourself and your investment portfolio.

With that in mind, we asked three Motley Fool contributors to profile strategies you can use to fortify your portfolio. Read on to see why they think that taking these steps can save you from a whole lot of financial hurt. Image source: Getty Images. Move your money away from risk and toward quality

Keith Noonan : Timing market sell-offs and crashes with any degree of meaningful consistency is famously difficult, but there are steps you can take if you think things are about to take a turn for the worse.

Due to the inherent difficulty in predicting when big sell-offs will occur and the potential gains you can miss out on if a crash doesn’t actually occur, many successful investors choose to remain in the stock market even if they think there’s a real possibility tough times could be ahead. They just choose to shift their holdings into sturdier companies that are primed to put up strong sales and earnings performance even if volatility comes calling for equity valuations .

If you’re heavy in tech stocks and get the sense that the market is about to make a sharp turn into bearish territory, that means it could be a good time to move out of speculative growth plays that aren’t yet posting substantial earnings or showing surefire signs of rapid, dependable sales growth. Rather than being heavily invested in that hyped-up company hot off its recent initial public offering, you may be able to significantly reduce your downside exposure by shifting that money to a time-tested category leader like Amazon . Even better, you don’t have to give up the potential for notching significant gains by making such a move.

There’s no perfect formula for ensuring that your portfolio survives and thrives through turmoil impacting the market at large, but prioritizing strong companies is a foundation for success. Re-weighting your investing dollars toward great businesses that are already relatively well established and have qualities that put them in position to rise above the noise is one of the best things you can do if you fear a sell-off is on the horizon. Own companies you understand

Daniel Foelber : It sounds deceptively simple, but owning businesses that you have a fundamental understanding of can be one of the best ways to protect your portfolio from a stock market sell-off. When your accounts are painted red for an extended period, you may be tempted to stop the bleeding. Selling a good company at a low price is a great way to lose money .

Understanding what you own and why you own it can be a great way to stay levelheaded no matter what the stock market is doing. For example, if a company’s stock price is going down for macroeconomic factors outside of its control, but the investment thesis hasn’t changed, then it’s probably not a good idea to sell. Similarly, if a stock price is skyrocketing despite declining fundamentals, it could be an ideal time to sell.

Warren Buffett put it well in a January 2015 chat with Quicken Loans: Mr. Market is kind of a drunken psycho. Some days he gets very enthused, some days he gets very depressed. And when he gets really enthused you sell to him, and if he gets depressed, you buy from him. There’s no moral taint attached to that. What Buffett is saying is that short-term price movements can be completely random. Think meme stock euphoria , or certain cryptocurrencies skyrocketing or plummeting at random. A stock price is merely the reflection of what the market is willing to pay for a security at a given time on a given day. There’s no obligation for you to agree with that price. Therefore, making a game plan before a sell-off and anticipating how you will react if prices fall will give you the tools you need to persevere. Buy some cheap market-correction insurance

James Brumley : I’ll preface my part by saying this idea isn’t going to be a fit for everyone. But, if you truly believe stocks are due for a steep sell-off sooner or later, a cheap put option on a market index is, well, an option.

An option is the […]

source 3 Ways to Protect Your Portfolio From a Stock Market Sell-Off

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