How to Protect Your Profits

From increasing your cash holdings to buying options, we show you how to defend against a correction -- or worse.

Feeling queasy? Even after a bit of autumn indigestion, stocks have risen awfully far awfully fast. From the market’s bottom on March 9 through November 6, Standard & Poor’s 500-stock index rocketed 60%. The tech-heavy Nasdaq did even better, climbing 66%.

And although we believe that the market will continue to rise in the coming year (see Where to Invest in 2010), there are no certainties when it comes to stocks. As we went to press, the market hadn’t even experienced a correction -- defined as a decline of 10% -- since March. A drop of that magnitude can occur anytime without warning and without any change in the fundamental outlook. And if the economy -- and, more to the point, the earnings picture -- proves worse than we expect, the bear may make an unexpectedly early reappearance.

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Contributing Editor, Kiplinger's Personal Finance