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CHAPTER 9: How to Survive Bear Markets > Adopt a Conservative Asset Allocation

Adopt a Conservative Asset Allocation

Plan ahead. It wasn't raining when Noah built the Ark.

By far the best way to prepare for a bear market is to have proper asset allocation and diversification to begin with. That's the key. If you're not overweighted in equities at the outset, you probably will not suffer an irredeemable loss. Do this when you determine your asset allocations. Assume unfavorable market conditions at the outset.

Asset allocation is usually a good technique for limiting losses. Unfortunately, it didn't work in 2008 because virtually every asset class except a few types of bonds declined. Gold futures, continuing an eight-year run, gained 5.5 percent, but it was the smallest gain since 2004. Most gold mining stocks suffered losses.


  

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