How to Hedge Your Portfolio Against Risk

Author: Kelly Parks

All the "so-called" experts on television preach about diversifying your portfolio. To tell you the truth, I think this idea is misunderstood by not only these experts but also the general public.

If you diversify a portfolio of five stocks into different industries you are hedged against risk but you are also hedged against growth. This is a two way street and when investing I always invest to win not to break even. Let's take an example:

Say we own stocks on the NYSE (New York Stock Exchange) that belong to the following industries:

Telecommunications
Oil
Finance
Health care
Tobacco

What kind of scenario allows for all these stocks to go up in multiples? I can't think of one! If 3 go up and 2 go down, we have basically broken even.

I know what a lot of people are thinking, "I'm 60 years old, why would I want to risk my money?" If you want to make a 5% gain then buy some bank notes, but truth be told small stock portfolios "that are not being monitored" are risky no matter how they are diversified. So what do we need to do to become hedged against risk and create growth at the same time? WHAT WE NEED IS ASSET ALLOCATION!

Asset allocation is the diversification between different asset classes all together. Let's buy some real estate, stocks, bonds, businesses, REIT's!
Most hard assets fall one or two at a time at most; if we are spread among these we are in better shape. Some people think there is so much doom and gloom in America.
What most people find it hard to do is invest outside of America! Buy some real estate via joint venture in Brazil, buy some EUR/USD on the FOREX market, REIT's in Canada, etc. Asset allocation truly allows you to be diversified. There will always be a bull market or a sale on investments somewhere in something, just always keep an eye out. Don't let yourself be caught too off guard by fluctuating markets and keep your money moving between assets types.

If you are strictly a "real estate investor" or "stock investor" this method might not be for you, but at least you can expand your vision to invest in other geographical exchanges and areas. Always invest with an exit strategy and always keep on the ball.

-"Therefore when you induce others to construct a formation while you yourself are formless, then you are concentrated while the opponent is divided."
The Art of War
Sun Tzu

About the Author:

Kelly Parks started investing at a very young age and since has been writing articles on investing on www.wealthforinvestors.com

Kelly hopes to bring financially freedom to all that truly want to.

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