ISA and SIPP portfolio protection in falling markets

Posted by Paul Sutherland on Tue, Jan 17, 2012 @ 10:29 PM

ISA and SIPP portfolio protection in falling marketsSome people who are interested in our Investment Guidance Service want to know more about portfolio protection in falling markets. In this post, I’ll look at this in more detail.

Our secret weapon is ISACO’s lead investor. He’s a trend follower and market timer, whose aim is to get in sync with the market’s trend and direction. Rather than swimming against a current, he prefers to swim with it. A full economic cycle lasts about 5 years and consists of a bull market and bear market. A bull market is when the market forms an uptrend and a bear market is when the market forms a downtrend. 

Bull markets can be seen as the ‘boom’ part of the cycle and the bear market can be seen as the ‘bust’ part. Your aim should be to ride the wave of the bull market and stay fully invested. This is typically a two to four year period. During this time, you don’t move into cash. Instead you stay fully invested in high quality investment funds and sit patiently in your investment funds until the bull market has run its course.

When the bull market ends, a bear market begins. This is when your investment strategy changes from ‘profit’ to ‘protect.’ 75% of investment funds move in the same direction as the stock market and if the market is falling (bear market), most investment funds will drop irrelevant of their grade or manager status.

How to achieve portfolio protection in falling markets

Investing against the market’s trend is dangerous. Investing in investment funds during bear markets is high risk. Quite simply, portfolio protection in falling markets is best achieved by being in cash.

Here’s how it works: When a bear market takes hold, your aim should be to move into cash. This gives full protection to your ISA portfolio. To guarantee that your full ISA account will be safe, use a cash park. The one ISACO prefers is Fidelity’s ISA Cash Park. Switching from being invested in a quality investment fund into a cash park is just like moving your cash from the stock market to a bank.

Bear markets are shorter in length than bull markets and tend to last 9-18 months.  To ensure portfolio protection in falling markets, you have to be patient and sit in cash until the bear market ends and a new bull market begins.

When the bear market is over, a new bull market begins and this is when you move back into quality investment funds. Take a look at this table and it will show you how it works.

Market description

Type of market 

Estimated length of time 


Frequent trading?

Bull market.


2-4 years.

Profit – Invest in high quality investment funds.

No, only one or two trades to make per year.

Bear market. 


9-18 months.

Protect – Use cash parks to preserve profits. 

No, only one or two trades to make per year.

By moving temporarily into a cash park when the market is falling, it helps to preserve and protect your profits made in the bull market periods.

Past performance in the last two bear markets

In the 2000-2002 technology crash, our lead investor Stephen Sutherland dropped 8.4% per year compared to the FTSE 100’s 12.7% per year loss. In the credit crunch crash of 2008-2009, his account fell 4.8% per year compared to the FTSE 100’s 7.8% per year loss. These results tell you our lead investor helped ISACO’s premium clients ‘to beat’ the FTSE 100 in the two previous bear markets, which is something 80-90% of DIY investors and advisers failed to do.


We specialise in providing a premium Investment Guidance Service for ISA and SIPP investors with portfolios in excess of £100,000.

Our mission is to help investors achieve better performance over the long-term, better portfolio protection in falling markets and at a better price.

For more information about ISACO and our Investment Guidance Service, please read our free brochure.


Please remember that past performance should not be used as a guide to future performance. The value of investments can go down as well as up and you may not get back the amount you originally invest.


Topics: Better protection, Investment Guidance Service