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Stock market valuations are at all time highs. When the market will experience its next correction – or what the triggering event will be is anybody’s guess – but it is coming.  Just look at the S&P 500 over the last 6 years:

2013  32.42%

2012  15.88%

2011  2.07%

2010  14.87%

2009  27.11%

2008  -37.22%

For the first 6 months of 2014, the market is up another 6.2%. If the year ended right now, we would have experienced a 6-year run that averaged 16.4% per year – spectacular in historical terms.

So maybe it’s time to take some profits.

Wall Street investing requires us to sell a position to turn a paper profit into a real profit. But that leaves the perplexing question of what to do with cash on the sideline.

If the market continues to go up – you miss the ride. But re-investing means getting into another position that might be ripe for a correction – wiping out the profit you just captured. Re-investing idle cash is a matter of timing and guesswork – as are most decisions in the Wall Street investing game.

“If only there were a way to lock in profits, and redeploy cash into something that would capture any remaining upside market gains, but lock out any downside market risk?”

Well there is – that strategy exists! Its called equity linked indexing with a floor and cap. Here’s how it works.

Money is deposited into a contract with a large financial institution. The terms of the contract grow your money along with the market’s movement, subject to a floor rate and a cap rate. Consider a contract with a 1% floor and a 13% cap (floors and caps vary by contract).

  • If the market gains 8% – your money will be credited with 8% growth.
  • If the market loses 10% – your money will be credited with 1% growth (the floor rate)
  • If the market gains 18% – your money will be credited with 13% growth (the cap rate)

These kinds of money contract accounts can be great in any market, but are particularly appealing when a market appears to be reaching its peak.

But don’t expect your broker or advisor to bring these kinds of contracts to your attention. This is a “set it and forget it” approach, and Wall Streeters rely on ongoing transaction volume to earn their living.

To learn more, ping me back – or the person who re-posted this article.