[Kathy]

Just curious. Wondering. And many (although not most) can answer these questions. It is those people who can intelligently, and with experience and knowledge, answer them that I put forth these questions.

If people are hedged right now, don’t they want panic in the market? Won’t they make tremendous money if stocks go down, if the market is volatile?

Am I understanding this right?
Should we, as a FI community of investors, be hedged partially right now?

So many want us to invest in a few stocks and chill. But isn’t it more intelligent to be hedged in a volatile environment?

At least partially? Yes, there is risk to it, as there is to any stock ownership.

But another question I have is: could some influential people be wanting to feed the fear? For their own profits, perhaps. No, they would never admit it, would they?

Just silently add up the dollars. Some may want to call this conspiracy theory, but I wonder what the research would show.

The rich get richer in almost any market, correct?

Yes, over time, if you invest and chill, you will reap great harvests. But wouldn’t you reap more if you adjusted your holdings responding to the market?

Higher in bonds when stocks are low?

Hedging perhaps? Other investments?
Or am I such a newbie that I am making absolutely no sense at all? (Probably so. And that’s OK.

I’m learning. Hopefully from the best.)

[Cynthia]

What’s the Wizard of Omaha doing? Anyone know? If he’s playing it cool, so should we.

[Ron]

“Rich get richer in almost any market, correct?” No. The uber rich have most of their net worth trapped in the stocks of the company they created, though over time they’ve diversified elsewhere as well.

But I doubt that they are frantically moving their money around during downturns. Like us they can just stay put and wait for a recovery.

If your $100 billion, much of it locked into a company and you can’t sell it, goes down to $80 billion for a time, who cares?
“Yes, over time, if you invest and chill, you will reap great harvests.

But wouldn’t you reap more if you adjusted your holdings responding to the market? Higher in bonds when stocks are low? Hedging perhaps? Other investments?”

No. The market and investment classes don’t coorperate by getting the right information to you in advance of market moves happening, so you are always guessing what’s going to happen. Or worse, you’re taking some “expert’s” advice on what’s going to happen, who will probably be wrong in termx of the important details 80% of the time.

Case in point, I sold everything I had in one 401k to cash in advance of Trump 1.0 thinking the market would crash. It didn’t and I missed out on 10’s of thousands of gains.

It took about 6 months before I came to my senses and moved the cash back in.

It’s okay, and probably better than timing, to have some diversity built into your portfolio at all times. How much might depend on many factors.

Then adjust only at defined bands, for example if this goes down 10% I’ll sell an asset class that has gone up (rare), been stable or that has gone down less to buy the thing that is down.

A lot of times everything is down though.

[Rick]

Why is it a volatile now? Compared to last year? To 2022? To 2020? To 2018? Notice a trend?

To question of hedging, it is not free. Making it a return drag. And if the market is always volatile and always capable of volatility, the hedging cost would be constant.

Making it expensive and likely ineffective.

Small diversifications within asset classes can act as a sort of hedge with lower success and lower cost.

Adding large cap value to VTI. Adding small cap value. Adding REITs.

But accept in most major market calamities over the last 20-25 years, correlation of these asset classes have rapidly approached 1. And that includes many form of bonds.

Meaning they all sunk hard in value.

So, paying ongoing hedging for false hope is not a long term plan.

Paying for some diversification that just does enough to keep,you from selling and instead holding to ride back up eventually is more ideal. Give it a look and analysis.

[Sarah]

Most of us here are long term investors. The short term ride may be bumpy and that’s to be expected to some degree, but long term results will be fine. We can’t time the market.

And, we can’t judge how long a market will be volatile.

The notion that “it’s volatile now” is a subjective one and depends on what you’re comparing it to. So, it’s best to invest and chill.

Read The Simple Path to Wealth for more info.

[Mark]

I’m 70% total market / S&p 500. 20% small cap. 10% brk_b. I’m fairly confident w this diversification strategy that I’ll have a lot more money in 20yrs than I do now.

Everything I read and hear is noise. Keep ur emotions in check.

Moving ur allocation around every few yrs is how ppl lose money. Ur investing for 20+ yr horizon.

[Prasad]

Many of us don’t invest in a few stocks like you said. We invest in VTI or other broad based ETFs, which are usually hundreds, if not thousands, of stocks.

“Higher in bonds when stocks are low” — no one can say when stock market is high or low. Schiller P/E and other such metrics don’t have much predictive power.

From 2014, my brother-in-law (who is a finance MBA and worked at Credit Suisse as an asset pricing manager) has been saying recession is coming and stocks are overpriced.

He didn’t buy stock ETFs or a house until last year for the same reason.

Very costly mistakes.
In this community, we take charge of what we can control, and ignore the rest like noise from the news media or politics.

If you want a proper framework and expert answers for your questions, highly encourage you to listen to risk parity radio podcast.

[Amy]

What does hedging mean to you? Does it mean reacting after the market has already moved? Does it mean trying to predict what the market will do in advance?

Hedging for a retail investor should mean investing in broad market funds because you cannot predict which companies will hit it big so you buy them all.

Hedging for a retail investor should also mean to always be buying since you cannot predict when the market will rise or fall so you dollar cost average your purchases.

[Michael]

I think it’s a matter of what sort of game you’re playing. Hedge funds play a very different game than long term individual investors.

Day traders play a very different game than long term individual investors.

Berkshire Hathaway plays a very different game than long term individual investors. For the long term individual investor, a well diversified, low cost index fund, systematic buying approach has been the solution for decades.

Hedging can work in volatile markets…but it also tends to implode on a fairly regular basis.

[Johnny]

I think the underlying assumption that we are in a “volatile market” is the problem. YTD the market is up. Over the last year, we are up over 20%. Over the last 5 years, up 70%.

I think my point is that you don’t know when the market will go up or down so instead of trying to time the market, you dollar cost average in.

Think about all the major events over the last 5 years…many would have called that volatile times.

[Jeremy]

Are there people who would try to manipulate the market for their own gains. Yes…but it’s hard to do.

If you’re a big enough entity where you can manipulate the broader market, then it is very difficult to do so undetected, and since it’s against the law, the downsides are very large.

If you’re small enough to fly under the radar, then your ability to move the market is limited.

Even then, if you do a pump and dump on a penny stock, it’s pretty obvious who the perpetrators are.

Roaring Kitty did it, and he managed to toe the line where it wasn’t illegal…but he is being watched very carefully.

[John]

There’s an old saying that time in the market beats timing the market. My investment accounts are basically in an S&P 500 ETF, and we don’t adjust, hedge, or anything else with those funds.

My trading accounts are just that. I trade in and out actively.

That is not a way to invest. For lack of a better word, it is a job, and I do not reccomend confusing investing with trading.

Most traders lose money, where most long term investors aquire wealth.

[Grant]

OP, I don’t really understand what you are trying to get at, but I will just focus on your one comment about “the rich keep getting richer.” This correct BTW.

Why? Generally, they are diversified and volatility in the market doesn’t bother them and in fact they prosper from it.

They also have cash reserves to take advantage of opportunities. If you are into options trading, volatility really drives profitability.

Case in point, NVDA is all over the place with the deep seek fiasco. Because I was able to capitalize on it I made $1200 in one week running what is known as the “wheel strategy.” Normally, I might have a couple hundred dollars.

So, for me, I love a volatile market (even a down market benefits me with options trading). Good luck in your investments.

[Steve]

What do you mean by hedging? Give some details
Risk and reward are directly correlated. If you want more reward – take more risk. But risk may mean losing a lot or all.

So, be warned.

Yes, there are ways in making money in falling markets, as well as in the rising markets. Yes, there are people who benefit from creating panic and fear.

It is difficult to predict the direction and invest accordingly. Therefore, for an average investor, it is better to ride the market via index investing.

[Jay]

For me- always be buying and just ride the wave. Timing has never worked for me.

[Bill]

I have enough exposure to the S&P so I also invest in a hedged mutual fund.

It doesn’t get the full return of the market, but also doesn’t lose as much if it drops.

[Endri]

Warren Buffet says be greedy when others are fearful and vice versa.
But right now it’s be fearful cause the market is up by a lot.

[Andrew]

Hedged doesn’t mean you make more money if the market goes down. It means you reduce some of your downside risk, but at the cost of upside potential.

If you were positioned to gain money from a crash, then you would likely lose money if the market goes up.

There are a lot of nuances, strategies and other factors that go into it.

[Author]

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