Should You Consider Hedging in 2023?

Hedging can offer risk mitigation against the effects of market downturns, helping to solidify your financial position.

Investing is a risky endeavor no matter your skill level. Economic downturns are inevitable, but are financial losses? The simple answer is yes, but having a solid investment strategy can help steady those losses.

The options you have in building that strategy are numerous but hedging is an option that can be particularly suited to fighting economic downturns. Read on to learn the basis of this strategy, its pros and cons and how NJM Wealth Preservation Strategies can help.

‍Portfolio Hedging During Market Downturns

Hedging is a strategy used to mitigate any losses resulting from an investment position during a market downturn. 

Put simply, it's investing in assets that you expect will move inversely - in this case positively - to an asset you hold moving in a negative direction. This strategy allows you to hold an asset that would typically be a loss, but is offset by the new asset that will grow.

This strategy can be used in a variety of ways. It can be applied generally to a category of assets to minimize losses, such as currency you hold or commodities. You can also apply hedging in more strategic ways. For example, if you hold Stock A and expect Stock B (it’s competitor) to perform well if Stock A doesn’t, acquiring Stock B can “hedge” against any losses you would typically occur if you only held Stock A.

When considered broadly, there are a variety of ways to apply hedging. If you don’t consider yourself a seasoned trader, our team at NJM Wealth Preservation Strategies can help you take the first steps in rolling out this valuable strategy.

Pros and Cons

Pros:

  • Hedging can build a foundation of support protecting you against economic downturns
  • Hedging successfully protects you from interest rate volatility, currency volatility, commodity price changes and other market changes
  • Hedging allows you (or your financial advisor) to attempt dynamic options trading to make the most of your investing strategy
  • Futures and options (in the short term) can mitigate risk against your long-term investments

Cons:

  • Hedging involves an investment of time and money that can potentially work against you
  • As a market recovers, hedging can become an obsolete strategy
  • Hedging is not a “beginner strategy” and should be handled by an experience trader or a financial advisor
  • Attention to detail is the phrase to consider, if you’re not involved daily, this strategy may not be for you

Let’s Start the Conversation

NJM Wealth Preservation Strategies was founded on principles of transparency and with the goal of preserving your wealth for generations to come. With the potential for a recession higher than ever, we believe that evaluating all strategies - including hedging - can be a valuable tool to protect your wealth.

Here at NJM, our Wealth Preservation Specialist, Nic J McLeod, is a true Fiduciary, meaning he is legally bound to put his client’s best interests ahead of his own. 

The entire team at NJM values our foundation of legal and ethical trust with transparency and have proudly helped thousands of families across our great nation redirect their future by securing their financial well-being. 

If you are interested in partnering with a firm who will build a portfolio around your best interests and goals, while focusing on eliminating risk and preserving wealth, reach out today. 

Last Words

Kick off the New Year with a gift to yourself, your heirs, your future and your portfolio by learning how so many aspiring and official retirees like yourself have been placed back in control of their retirement. 

Schedule a call with us today.

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