#2: Invest in Dividend Stocks
As another hedging option, you might consider rebalancing the equity portion of your portfolio away from growth and into lower-beta dividend stocks. This is an imperfect hedge — in a broad-based market correction, nearly all sectors take a hit — but as an old finance professor of mine used to say, “The only perfect hedge is in an English garden.”
Within the dividend-paying universe, I’m particularly attracted to triple-net REITs. Investors feared the absolute worst when the Fed first started to really make noise about tapering in May of last year, and they dumped virtually all securities for which income is a major component of returns. In the process, they left us with some real bargains.
As I wrote last month, REITs such as American Capital Realty Properties (ARCP) now offer stunning yields, including ARCP at 7.3% — and this from a conservative property portfolio leased out to a diverse, high-quality tenant base. A REIT like American Capital would be a great bargain even if the worst fears about tapering proved to be true. And if tapering proves to be a nonfactor (as I expect), then ARCP is an absolute steal.
In a broad-based market selloff, ARCP and its peers among triple-net retail REITs would probably fall too. But given the beating the stock has already taken — it’s down nearly 30% from its May highs — it would be falling from far less lofty levels.