In one of my previous posts, I have shown how investors can hedge their portfolios and be better prepared for the potential market decline. In brief, the main purpose of hedging is to reduce investment risk and lock in profits by taking an offsetting position in a second instrument, such as options and futures, or by selling-short. While this sounds pretty intuitive and easy to do, in fact, the technique can be hard to implement without having an extensive investment knowledge, especially in derivatives.
The current bull market that started in 2009 is the 3rd longest bull market in history. We’ve been in this state for 2,287 days (since March 6, 2009.) Moreover, during this period we haven’t seen a 10% correction for 968 days already (since August 4, 2011), which makes it the 5th longest period without a 10% correction. No wonder, many analysts and investors are getting nervous saying the market is overvalued and due for a pullback. [Read more…] about Seven Ways to Hedge Your Portfolio
You will be amazed to find out how much time people are willing to spend on irrelevant things. On average, Americans watch over 5 hours of TV and spend about 40 minutes a day checking a Facebook feed. Just imagine what we could have accomplished by spending this time on things that really matter or can significantly improve our life. But even more amazing is how indifferent people are when it comes to their finances.
Last Friday, I posted a link on my Facebook page encouraging my friends (100+ people) to take a quick and simple risk tolerance test. Once done, the test assigns a risk score number which you can then discuss with your financial adviser and make sure that your current asset allocation suits your risk profile (if you are interested, I am providing this link below.)
Do you know how many people clicked on the link and decided to find out their risk tolerance level? Zero!
Honestly, I was surprised. For whatever reason, people delay or even more dangerous, avoid dealing with their financial issues that require attention. Young people are confident that they have more than enough time ahead while middle age and elderly people, on the contrary, usually think that it is already too late to make any adjustments. One day, they get to the point when it is indeed too late to fix it. We all have seen statistics and heard stories of people retiring with $20,000 in savings or losing a huge portion of their portfolio right before the retirement due to being heavily invested in stocks or even worse, in one single stock. It is never late to take an action and there is almost always a solution to whatever issue you have.
A single risk score number is not a panacea for all your issues and concerns. However, it is a good reason to check with your adviser and ask him or her some questions. Am I taking too much risk? Is my portfolio too conservative? Is it well-diversified? What adjustments should I make to my portfolio in order to reach my financial goals? These are just a few simple questions, but they can significantly affect and improve your financial life. Just ask them. Be proactive and not indifferent.