Investors wanting to take part in the market's upside but also looking to protect against the downside risks should focus on three areas, Sani Hamid, director of wealth management at Financial Alliance, told CNBC.
Dividend paying unit trusts are just one area investors can look, as well as convertible bonds and defensive sectors like health care, according to Hamid. If your portfolio is 60 percent stocks, then you should hold 20 percent of that in the health care sector, he suggested.
"One of the first things to probably do is to start putting in all these instruments which will allow the investor to participate in the upside but then try and limit the downside," he added.
- Watch the full interview with Sani Hamid above.
He said that he is long on stocks and does not suggest investors change their portfolios at this point in time as he sees the rally continuing another 10-20 percent.
"As it does, I think then investors and ourselves should start thinking of how to protect our wealth by changing either the makeshift of the whole portfolio or doing something else," Hamid said.
If stocks rise another 10-20 percent, with the Dow Jones Industrial Average going above 12,000 and the S&P 500 index above 1,300, that will signal too many investors in the market and that it may be time to become very cautious and possibly reduce exposure to stocks, Hamid said.
Money flowing in from the sidelines could move into the previously avoided markets like the U.S. and possibly even Europe rather than Asia, as funds are already fully invested in the region, he said.
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