Are You Hedged Against Economic Uncertainties?
While we don’t know the future, it is wise to remain prepared against uncertainties. For instance, you don’t know how long you will be able to stay healthy or if you will experience a job loss.
Further, you should be very skeptical right now about the economic strength of the world’s largest economies such as China, Europe, Japan and the USA. These nations have averted economic pain through quantitative easing, economic policy and market controls but it doesn’t mean we are not vulnerable to a correction.
So what is hedging and how does one go about it?
According to Investopedia, “’Hedging’ or ‘Hedging risk’ is making an investment to reduce the risk of adverse price movements in an asset. In other words, investors hedge one investment by making another.”So how do you hedge against life’s economic uncertainties?
First, an easy example is buying insurance to protect your family against any loss of your income can be considered a form of hedging.
Next, have an emergency savings account. This is hedge against a job loss, unexpected expenses and medical emergencies.
If you have money invested in the market, it is a good idea to look at buying some ETF’s that are designed to run contrary to the stock market. If the market goes down, those funds go up.
My advice is to think of these strategies just like buying insurance. You may lose your money, but you will be glad you did. So don’t hedge any money you cannot afford to lose.
Originally posted on Crown.