How To Insure An Investment Portfolio

Most people are failing to safeguard their investment portfolios in the same way that they’re protecting their homes or cars.  For most of the past 50-plus years, investors could balance their risk profiles simply by putting their money in a 60/40 stock-bond allocation. But those days are gone. What’s the solution to risk mitigation in a low-interest-rate environment? Many individual investors—working with their advisors—have been following in the footsteps of their institutional counterparts, purchasing volatility-risk protection, also known as tail hedging. For example, an investment portfolio with an allocation of 90% to equities and 10% to predictable uncorrelated asset classes that has built-in tail hedging (i.e., portfolio insurance) can provide enormous protection. If that 10% allocation increased to 30% during market turmoil, it acts as a hedge for the equity portfolio and allows the investor to reallocate capital, buying stocks at lower, more attractive prices. The result: You become a buyer when everyone else is a seller.

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Source: Wealthmanagement.com