Portfolio Protection

You are aware of the fact that investing always involves risk and therefore the idea is for you to create a portfolio that you will feel comfortable in holding no matter what conditions may develop. And here is a strategy that goes a long way toward fulfilling that objective!

This involves using a combination of Treasury bonds and ETFs, in what is known as a "zero wrap" strategy. This involves using a particular type of Treasury called a zero coupon, which doesn't pay interest, but rather is bought at a discount to its maturity value in much the same way as Series EE government savings bonds. Now here is the way this would work.

Example: Suppose you have $100,000 for investing but you do not want to risk your principal. Using this strategy, you would purchase a zero-coupon treasury with a 10-year maturity value of $100,000 - which sells currently for about $65,000. That leaves $35,000 left over for ETFs. And if you hold the zero to maturity, you would be guaranteed to receive $100,000 - plus whatever the ETF shares will be worth at that time.

One very important fact to remember is this: Zero-coupon bonds should ONLY be held in a tax deferred account such as an IRA or a KEOGH, because any interest earned on a zero-coupon bond is taxable during the year in which the interest is earned, even though you do not actually receive that interest until the zero-coupon bond matures!

* * * * *