Hedging - How it Protects

May 21, 2024 8:00:00 AM


Protection. We all want it; we all need it. Riding a bike or downhill skiing?
Helmet. Driving a car? Seatbelts. How about your investments? How can
you protect your gains and reduce the impact of a sharp decline? Hedging.

In the context of managing investments, hedging refers to the strategy of
reducing or mitigating the risk of adverse price movements in an asset or portfolio by using financial instruments or techniques (we will discuss these in more detail in another post).


The goal of hedging is to protect your investment positions from potential
losses while still allowing for potential gains. So, hedging has the ability to
provide a lot of potential - here is why that is important:

  1. Managing Risk - You can offset potential losses in one part of your
    portfolio with gains in another part. This balancing technique can
    reduce risk. Learn more about balance here - Reformed Investor -
    Pivot to Ride the Volatility Wave.
  2. Protection - During periods of market uncertainty, hedging can
    help protect your assets if there is an anticipated market decline. Just
    like placing a helmet on your head, you are protecting yourself from a potential fall. The more dangerous your actions, the more you will
    need that helmet. If you are more likely to make riskier market
    movements, your protection can be enhanced with hedging. An
    experienced manager can assist you with discovering just how much
    risk is appropriate for you. 
  3. Capital Preservation - Adversity can strike at any time. Preparation
    is key for preserving your assets. Hedging can limit the amount of loss you may experience in a market downturn. It will also make the climb back up to previous levels much shorter.
  4. Diversification - Hedging techniques allow for diversity in your
    portfolio beyond just investing in different sectors. It’s more like
    betting on specific outcomes. Diversification is considered a hedging
    strategy. You may invest in companies that represent polar opposites
    in the economy, protecting yourself from both sides.
  5. Enhanced Returns - The primary purpose of hedging is to manage
    risk, but it has the ability to enhance returns by allowing you to
    participate in the upswings of the market while still having protection.
    Investing with options or futures contracts can help hedge positions
    that can go either way.
  6. Tailoring Exposure - Hedging allows investors to tailor their risk
    exposure to their specific investment objectives and risk tolerance
    levels. If you are mindful of your goals and are certain about the levels of risk you are comfortable with, your manager can tailor your
    portfolio to match.

Whether you are looking to protect against currency fluctuations, interest
rate changes, or changes in commodity prices, hedging can help to provide some cushion. Your manager can use a range of tools and strategies to manage risk and get your portfolio back to gains more quickly.

Vineyard Global Advisors offers 13 fee-only, actively managed,
including hedged and long-only investment strategies via
separately managed accounts. Contact Us to learn more.

Knowing how to evaluate potential risks and rewards carefully can be
overwhelming. Look for a manager who has the experience and ability to
tailor your portfolio and who can access specialized funds, strategies, and opportunities.

View Our Strategies Contact Us Today

Investment advisory services are provided through Integrated Advisors Network, LLC (“Integrated”) a registered investment advisor. Registration does not imply a certain level of skill or training. Vineyard Global Advisors, LLC is a practice group of Integrated.

The opinions expressed herein are those of Vineyard Global Advisors and are subject to change without notice. This material is not financial advice or an offer to sell any product. Forward-looking statements cannot be guaranteed. This document may contain certain information that constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology. No assurance, representation, or warranty is made by any person that any of Vineyard’s assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future. Vineyard Global Advisors is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Investment advisory services offered through Integrated Advisors Network, LLC (“Integrated), a registered investment advisor. Vineyard Global Advisors is a DBA of Integrated.

Investors cannot invest directly in an index.

There is no guarantee that the investment objectives will be achieved. Moreover, past performance is not a guarantee or indicator of future results. Does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting or other material considerations.

Integrated is registered with the Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Business is only transacted in states in which it is property registered or is excluded or exempted from registration. A copy of Integrated's and VGA's current written disclosure brochure filed with the SEC which discusses among other things, business practices, services and fees, is available through the SEC's website at:

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