Don't turn your vacation into a Grinch-like financial disaster. Know how to protect your assets — especially your portfolio — while you're away.
Sure, holiday and winter getaways are a time to unwind, unplug and disconnect from the daily grind. But assets like stock portfolios, 401(k)s, homes, and cars never get a vacation.
Bear markets can hit when you're lounging on the beach. So, keep your guard up during vacation down time. You don't want to come back from a week at an island getaway to realize the S&P 500 has cratered 20% or a top stock holding is down even more.
How To Protect Your Assets And Portfolio While On Vacation
If you're a do-it-yourselfer and won't have a financial advisor looking after your money, there are steps you can take to keep your assets safe.
It's better to be proactive than reactive. Rebalance your investment portfolio before you go on vacation, says Anthony Ogorek, president and founder of Ogorek Wealth Management.
Let's say you started the year with a portfolio mix of 60% stocks and 40% bonds. But thanks to the S&P 500's more than 25% rise this year, your stock allocation swelled to 85% as you depart for a trip. Get your portfolio asset mix back to your desired allocation before you board the plane.
"If the markets decide to tank, I'm feeling a lot better than if I was still at 85% stocks because I was meaning to rebalance when I got back," said Ogorek. "(Rebalancing) is something that can give you some peace of mind."
Don't Forget Your RMD To Protect Your Assets
Take your required minimum distributions (RMDs) from retirement accounts before your plane takes off near year-end, Ogorek advises. Why is that? "If you have funds that have not been distributed, you're going to be subject to a significant penalty for not having taken your RMD," said Ogorek. "A lot of times people leave stuff until the end of the year. But (they get so busy) planning their trip, that they end up forgetting to (take their RMD)."
If an account owner fails to withdraw the full amount of the RMD by the due date, the owner is subject to a 25% excise tax on the amount not withdrawn. The 25% penalty, however, falls to 10% if you correct the error within two years, the IRS says.
Protect Assets Downside With A Stop-Loss Order
If you have existing stock positions that you want to protect against unexpected sizable losses, placing a stop-loss order before you leave for vacation is a way to limit your downside, says Ogorek.
Stop-loss orders are used to protect a profit or to prevent further loss if the price of a security moves against you. Keep in mind, however, that this type of order becomes a market order when the stop price is reached. Therefore, there is no guarantee that your order will be executed at the stop price.
Set Up Limit Orders For New Positions
You can take advantage of buying opportunities while you're away on vacation. A limit order to buy, for example, enables you to buy the stock at or below the limit price. You can place limit orders for either a specific day or period of time, such as the length of your vacation, or once the trade is executed.
There's another way to protect your portfolio from a possible correction and hedge against downside risk when you're away. Consider hedging your portfolio with put options through SPX index options (which are based on the S&P 500). You can do the same with SPY options (based on SPDR S&P 500 ETF), advises Joe Mazzola, head trading and derivatives strategist at discount broker Charles Schwab. A put option is a bearish bet.
Just like home or car insurance, buying a put option can protect your portfolio from a sudden downdraft. If the market drops, the value of the put option will rise, offsetting some or all the losses in your portfolio.
"To employ this strategy, the options buyer needs to equate the nominal (or current) value of the portfolio to the value of the hedge," said Mazzola. So, if the S&P 500 is trading at 6000, a $600,000 portfolio would require one SPX put option purchase as a proper hedge. (Each SPX option represents $100 times the strike price. 6,000 x $100 = $600,000.)
Protect Your Assets And Cash While On Vacation
It's not just your 401(k) or brokerage account that could run into trouble while you're away. The assets you leave behind, such as your home, possessions and cars, are also at risk.
"You know, your portfolio is not the only way you can lose money," said Ogorek. Pickpockets abound in vacation hot spots. And that means your credit cards, savings account ATM cards, and cash you carry are at risk.
That's why Ogorek advises a few prudent tips to keep these assets safe. Before you go away, place a freeze (or lock) on the credit cards you don't plan on using during your trip. "What you don't want to happen is to be on vacation and get a notification that there's been a major purchase made on your card that you didn't authorize," said Ogorek.
It's also a good idea to make copies of important documents, such as your passport, credit cards, and bank debit cards so you can quickly contact your financial institution in the event you lose them or are pickpocketed. "Copy the front and back of your credit cards," said Ogorek.
Make sure you can access all your accounts digitally. That's also another layer of defense. With the help of bank apps and investment account apps you can monitor your account for any suspicious activity. "Have all those accounts on your smartphone," said Ogorek. If you get an alert from your credit card company or brokerage, "you're just a couple of clicks away" from getting intel on your account balances and transactions.
Use The Safe
Other prudent steps are to place cash, credit cards you're not using and other valuables in the hotel room safe. And don't keep all your credit cards in your wallet when you're sightseeing or out to dinner in a foreign city.
It's also smarter to use credit cards rather than cash to pay for dinners out, buy souvenirs and for sightseeing, adds Ogorek. "If fraud occurs on your credit card, you're not going to be on the hook for the money," said Ogorek. "So, you're shifting the risk of fraud to the credit card company." Credit cards also give you the most competitive exchange rate. Getting cash from an overseas ATM will also result in extra fees.
Protect Your Assets, Home And Cars While On Vacation
To protect your house while you're away on vacation, make it look like someone is home. Lock all doors, keep interior lights on and leave exterior lights on to deter burglars, says Chris Schafer, senior editor for home insurance at Insurify.com.
And make sure you have a friend or neighbor collect any mail or packages as soon as they're delivered to your front door. "Especially during the holiday season when thieves tend to target unattended parcels," said Schafer. "It's also wise to avoid ordering items that will arrive while you're gone." If a package gets robbed, check to see if your homeowners or renters insurance covers the loss.
Take steps to winterize your home properly. Ensure you're covered if frozen pipes create water damage, says Schafer. "To prevent frozen pipes, insulate those on exterior walls, and run water through all your pipes (e.g., keep faucets dripping), especially during extremely cold weather," said Schafer. Make sure smoke alarms are in working order, too.
Lastly, don't broadcast your every move or share photos while you're on vacation via social media, either. "Wait until you're back home to share those vacation photos," said Schafer.
