Edward Flores's Avatar
Edward Flores
published in Blogs
Feb 19, 2021
5 Ways to Hedge a Portfolio

5 Ways to Hedge a Portfolio

As the trade war ratchets up and political uncertainty engulfs Europe, the global markets are looking more vulnerable to downside volatility by the day – particularly with valuations at such steep levels. For some investors, the growing possibility of a market downturn means one thing: it may be time to hedge your portfolio.

For newer investors, ‘hedging’ a portfolio means making an investment or taking a position in a security with the intent of off-setting price movements of other securities in the portfolio. In the current environment, for example, an all-stock portfolio could be hedged by something that tends to rise as stocks fall, like bonds or put options.

Given that over the last 100 years, 5% pullbacks typically happen about three times a year, 10% to 15% corrections every one to two years, and 20% bear markets every three to five years, hedging could make good sense for many investors. So, how do you hedge a portfolio?

Here are five ideas.

Broad-Based Diversification

This first idea is a classic strategy that is probably not new to most readers. Own a portfolio of different sizes, styles, and sectors of stocks, have an allocation to fixed income (bonds), and viola. You’re done.

But these days, diversification takes on a whole new meaning, given that securities such as ETFs now allow investors to have positions in an array of new asset classes, from commodities to real estate, to alternatives and even to cryptocurrencies. Diversifying a portfolio means much more than just owning stocks and bonds, and investors can get creative.

Increase Allocation to Defensive Categories

There are economically-sensitive sectors like Consumer Discretionary, Industrials, and Financials, and then there are traditionally ‘defensive’ sectors that tend to do better (relatively speaking) during sluggish economic times. These sectors include consumer staples, utilities, and healthcare. Tilting your portfolio allocation’s to more defensive sectors could help to offset volatility in other sectors/positions that tend to be more economically sensitive.

Explore Your “Options”

Buying put options could be another strategy for building a hedge in your portfolio. In this case, you could essentially “buy the option to sell” specific securities in your portfolio at a set strike price. In the event, the security’s price declines, you could exercise your option to sell at a higher price. Buying a put option is a lot like buying an insurance policy – if you don’t use it, you lose the premium (cost of the option) but limit your downside otherwise.

Another option could be to sell the market or some of your securities short, which essentially means selling shares at the current price in anticipation that prices will decline. When you sell short, you collect the proceeds of the sale and then promise to deliver the shares at a later date. Assuming those shares are cheaper down the road, you can return the shares and pocket the difference.

Inverse ETFs

Given how expansive the ETF world has become in recent years, there are several ETF options that could serve as a hedge. They are usually labeled ‘inverse ETFs’ and are designed to do the opposite of what a sector, region, or the broad market does. It is essentially like shorting, but the logistics of managing the ETF are handled by a third party – not you.

 

 

Raise Some Cash

Finally, you could just do things the old-fashioned way and raise some cash. If the market does indeed decline, you won’t feel the impact as much and you’ll also have cash available to reinvest at more attractive valuations. The downside is that if you raise cash and the market goes up, you don’t have that exposure. Sometimes peace of mind feels better, though.

Looking for Fresh Investment Ideas? Try Algorithms and Artificial Intelligence

Want to invest and/or diversify your portfolio but unsure where to start? Artificial Intelligence can help! Tickeron has developed user-friendly Artificial Intelligence tools to help new and experienced investors generate investment ideas. Tickeron’s A.I. is capable of evaluating a portfolio and providing a “Diversification Score,” to tell the user how well-diversified their portfolio is. It can also generate investment ideas for a user’s 401(k) plan – even if you’re just getting started! The A.I. will give you ideas based on your risk tolerance, investment objectives, and the investment options available.

Tickeron’s new financial website is available to beginners, intermediate investors, and even experts and advisors. Explore tickeron.com today.

Sergey Savastiouk's Avatar
Sergey Savastiouk
published in Blogs
Mar 07, 2021
4 Tricks Hedge Funds Use to Get Ahead

4 Tricks Hedge Funds Use to Get Ahead

If the stock market were Major League Baseball, hedge funds and institutional investors would be the pros on championship teams while everyday self-directed investors (SDIs) are the benchwarmers in the minors.It’s how they get ahead, and it’s why 90% of SDIs lose money trying to play (invest and trade) in the major leagues. The 4 tricks we discuss below are rooted in one common theme: they all use Artificial Intelligence and algorithms to generate data and ideas.
John Jacques's Avatar
John Jacques
published in Blogs
Mar 22, 2018
A.I. Stock Market Predictions: Head & Shoulders

A.I. Stock Market Predictions: Head & Shoulders

Statistics for the Head-and-Shoulders Bottom Pattern The days where only hedge funds used algorithms to trade stocks are officially over. Now retail investors can use Artificial Intelligence (A.I.  Here’s an example of the algorithm in action: Late last year, Tickeron’s A.I.
Sergey Savastiouk's Avatar
Sergey Savastiouk
published in Blogs
Jul 10, 2020
3 Stocks to Buy if Coronavirus Second Wave Hits

3 Stocks to Buy if Coronavirus Second Wave Hits

By analyzing market trends from the first wave, you can predict behavior for the second. Technology stocks have performed at historic levels this year, but the market is severely overbought.To compensate for that, look at performance during Q1 and Q2, the height of global Covid shutdowns.
Edward Flores's Avatar
Edward Flores
published in Blogs
Feb 06, 2021
How to Become the Millionaire Next Door

How to Become the Millionaire Next Door

The Golden Gate Bridge is always a fixture of these walks too, one of man's most beautiful creations.  As we were walking, at one point she turned to me and said, "Man, I'll never have a million dollars."" My girlfriend is 27 years old and works as a graphic designer, making about $75,000 a year.
Alla Petriaieva's Avatar
Alla Petriaieva
published in Blogs
Feb 23, 2021
Is Ethereum’s Bomb about to Explode?

Is Ethereum’s Bomb about to Explode?

Ethereum’s software is set for an update in October.Until it is finished, participants in the Ethereum blockchain must determine how to delay the difficulty bomb – code that necessitates a steadily increasing amount of computer power to mine blocks and unlock rewards – that is already in place.
Sergey Savastiouk's Avatar
Sergey Savastiouk
published in Blogs
Aug 07, 2018
When Is the Next Recession Coming?

When Is the Next Recession Coming?

However, we also know that economists predicted 22 recessions out of 11 that took place since 1945. Are there real recession signs we should watch for?Indeed, the answer is yes, and here are a few very important ones: The first one is almost obvious and known to everyone – it is the Fed.
Abhoy Sarkar's Avatar
Abhoy Sarkar
published in Blogs
May 22, 2020
Central banks have been buying $2.4 billion in assets every hour for the past two months

Central banks have been buying $2.4 billion in assets every hour for the past two months

Some $17.8 billion has been poured into  bond markets over the past week, the biggest move in more than three months.Around $3.5 billion has been invested into gold, the second largest on record. 
Rick Pendergraft's Avatar
Rick Pendergraft
published in Blogs
Feb 07, 2021
Mid-January Short Interest Report Shows 8 Stocks with Good Fundamentals and High Short Interest
Sergey Savastiouk's Avatar
Sergey Savastiouk
published in Blogs
Mar 10, 2021
How to Start Trading Penny Stocks

How to Start Trading Penny Stocks

Penny stocks have long been marginalized within the professional investment community, oftentimes being painted with a broad brush of simply being “too risky.” Leonardo DiCaprio’s depiction of the penny stock peddling conman, Jordan Belfort, in the Wolf of Wall Street certainly didn’t help.Here are four reasons to start trading them now. Reason #1: Let’s State the Obvious -- Penny Stocks are Cheap A single share of Apple Inc. costs over $350.
Abhoy Sarkar's Avatar
Abhoy Sarkar
published in Blogs
May 08, 2020
US unemployment rate jumps to 14.7%, the highest in series history

US unemployment rate jumps to 14.7%, the highest in series history

The U.S. economy’s employment fell by -20.5 million in April. The coronavirus crisis led to unemployment rate soaring to 14.7% in the U.S, the highest rate in the Bureau of Labor Statistics-tracked series history that goes back to 1948. However, the figures were better compared to several economists'/analysts' forecasts of 22 million job losses and 16% unemployment rate.  Another unemployment measure that includes those who have stopped looking for work as well as those holding part-time jobs for economic reasons also touched an all-time high of 22.8%.