With the vicious market declines over the past week or so several billions of market value have been wiped away. It has taken quite a bit of time to build, and very little to take it down. As the saying goes, take the stairs on the way up, and the window on the way down. Yet, for those savvy enough to cover their tracks with some protection, perhaps the pain from deep losses was not that severe.
We talk about having insurance on every aspect of our lives – from our home, our cars, our health and our life. But why not have that insurance on your wealth? Everyone hates the thought of buying insurance, but when you need it most it sure comes in handy, and you’re relieved. Markets become quite volatile, and while the bull market run has been a strong six + year, at some point the growth will slow down. We could be at that point now or any time into the future.
Hence, protection on a financial portfolio reduces risk, overall volatility and allows one to sleep better at night. Imagine the horror of losing ground as your solid portfolio holdings Disney, Apple, Microsoft and Chevron get hammered as the market enters into a correction period. There is nothing wrong with these companies, but when the institutions sell – they sell. Nobody raises a flag to say ‘correction time’, but for the long term you do not want to sell these holdings anyway.
But you could buy some put options as protection, on the stocks or just the market indices. These instances of correction are not common but do happen over time, So why not protect the positions – especially if the cost of insurance is inexpensive (as it often is when markets rise to high levels).
