Dear Reader,
The markets have been volatile and unpredictable since the news about additional tariffs on Chinese goods surfaced last week. This is a turbulent situation, but there are ways to protect your money and personal wealth from the government’s geopolitical policies.
It seems like there’s a lot of “doom and gloom” and recession talk out there right now, and while these fears are not unfounded, they should get us to focus on what’s truly important: protecting our wealth and money.
There’s a surprisingly easy and profitable trading strategy to use during extraordinary stock market volatility like now. It is so simple that many of you may have already figured it out!
Whenever the market’s volatility jumps, hedge your stock holdings. This can be done either by building up cash or using derivatives, such as put options. Unwind the hedge when the market calms down.
Hedging is a practice every investor should know about. There is no arguing that portfolio protection is often just as important as portfolio appreciation. Like the football fans say, the best offense is sometimes a good defense.
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The best way to understand hedging is to think of it as an insurance policy. When people decide to hedge, they are insuring themselves against a negative event. This doesn’t prevent a negative event from happening, but if it does happen and you’re properly hedged, the impact of the event is reduced. You can essentially develop trading strategies where a loss in one investment is offset by a gain in a derivative.
It is also very important to remember that the goal of hedging isn’t to make money, but to protect yourself from losses. The cost of the hedge, whether it is the cost of an option or lost profits from being on the wrong side of a futures contract, cannot be avoided. This is the price you pay to avoid uncertainty. Nothing in this world is free, no matter how many times a politician repeats it.
The success of this strategy has been documented by a study in the prestigious Journal of Finance. It was conducted by Tyler Muir and Alan Moreira, finance professors at UCLA and the University of Rochester, respectively. An analogy that Muir used in a telephone interview was this: Periods of turbulence are clustered, which is why it makes sense for the pilot to turn on the “fasten seatbelt” sign and keep it on until there has been a sustained period of calmness.
This strategy uses our own fear-based emotions to our advantage! Fear of a loss could have you a few steps ahead of others and preparing your money for the worst-case scenario. Being prepared for the worst can easily turn any apocalyptic event into an inconvenient one.
Best Regards,
James Davis
FutureMoneyTrends.com
93% Of Investors Generate Annual Returns, Which Barely Beat Inflation.
Wealth Education and Investment Principles Are Hidden From Public Database On Purpose!
Build The Knowledge Base To Set Yourself Up For A Wealthy Retirement and Leverage The Relationships We Are Forming With Proven Small-Cap Management Teams To Hit Grand-Slams!
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