Preparing for a Correction

I'm becoming more worried about a significant market correction occurring before the end of 2013.  First, the stock market is down about 4% from the all time highs set earlier this month. Second, the Fed will likely taper bond purchases before year end.  Third, there is uncertainty due to a new Fed Chair being appointed for 2014.  Fourth, political instability is increasing in the Middle East.

Overall, I'm surprised more pundits aren't highlighting the current decline.  The market only pulled back about 6% in June and all the pundits were all over it.  With the current market down almost 4%, there doesn't seem to be much public worry about a significant decline.

My main worry is the remaining stock options losing all of the gains from 2013.   I've been trying to develop some hedging and put insurance strategies, but haven't found a cost effect one yet.  My best scenario is for my company stock to rise another 6%, which means that this scenario probably won't happen.  The worst case is for the price to fall to or below the 2012 lows.

My next worry is the funds that are invested in stocks.  I 'm considering cashing out of 25% of my investments in the expectation of a market decline over 10%.  I will make the final decision in the next two weeks.

Finally, on the positive side, I'm looking a buying opportunities if the market should drop 10% or more. At that point, I will start reinvesting funds into stock for our college savings and retirement savings accounts.  I will continue to add 5-10% of outstanding cash to stocks for every additional 10% decline.

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This is not financial advice. Please consult a professional advisor.

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