#hedging #funfacts
Let’s talk about hedging.
All investors, beginners and pros alike, sooner or later face the question: “How do I protect myself from the turmoils of the market?” Or “Where should I keep my #gainz so that when the market goes down, I don’t go down with it?”
That’s a very valid question. As you can imagine, there are many possible answers. I’m going to highlight a few.
💵 “Stash the cash” - When you sell something at profit, take some percentage of it (let’s say 50%) and put aside to a bank account or your favorite trading account / app / brokerage (like#Public 🤩). Over time, the stash grows which makes you happy (hopefully!)
This approach helps you to have liquidity. Liquidity is super important at times when you want to open new positions. As the saying goes, “cash is king”. This also allows you to withdraw the money more quickly at times of need.
However the biggest drawback is inflation. When we store the money in cash that is not tied to any financial instrument, it loses value over time. $100 today can buy us less food than the $100 three years ago. Are there any ways around it? Well, yes. For example:
🎩 US Treasury Inflation-Protected Securities (TIPS) provide returns that are linked to the monthly change in inflation, as measured by the Consumer Price Index. $TIPZ is an example ETF that tracks the TIPS index. This changes very slowly (for example in the last 5 years it has the yield of 12.32%) but the risk profile is also very low. When the volatility rises, when you care close to your retirement, when the broader market goes down, when growth stocks cease to grow, this may very well be the instrument that keeps your losses at bay and your money safer.
As the saying goes, “in this world nothing can be said to be certain, except death and taxes”. Well.. is it maybe possible to avoid one of them?
📑 $VTEB Vanguard Tax-Exempt Bond is an investment instrument that is AMT-free. That’s right, tax-exempt bond market. It tracks the S&P National AMT-Free Municipal Bond Index, which includes investment-grade municipal bonds with at least one month until maturity and $25 million in face value. Interest received from municipal bonds is not subject to federal income tax. As a result, these bonds typically yield less (pretax) than comparably rated taxable bonds with similar duration.
🏆Lastly, let’s talk about an approach that is not directly tied to the US dollar. $GLD is the largest physically backed gold exchange traded fund (ETF) in the world. It is traded at 5 stock exchanges. Traditionally, gold used to have a lower-correlation with USD that many other instruments. During previous turmoils, gold prices would not fall as much as S&P500. However, over time gold prices generally underperform the broader market. This is yet another way to diversify your portfolio, storing value for some period of time.
What are some of your favorite ways to diversify your portfolio and make it more turmoil-proof? Please write in the comments below 👇
As always, this isn’t a financial advice and I’m not a financial advisor. Hope you found this post interesting.
Happy investing!
#growthnotgreed
#stashthecash
#steadydoesit
#longterm
#longerterm
#dreamofdiversification
@thetomytom @thetonton @ArtInvest
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