It's a New Year ... so it's time to do a Buy and Hedge Portfolio Check

by Wayne Ferbert on January 14th, 2014

The New Year is here and we are back to posting again! Sorry for all that time off but we were busy enjoying our families and the holidays.
 
As a Buy & Hedge investor, the new year is here! Time to look at our portfolio and see if we have achieved the right risk/return balance.
 
Check #1: Are you hedged?
 
First thing to check: Are you sufficiently hedged? This is by far the most important check for the Buy & Hedge investor. Make sure you own all of the hedge protection that you intended. Do you have every share hedged? If not, is that intentional?
 
If you have some shares that are un-hedged (intentional or not), this is a great time to add some protection. The cost to hedge for 9 months and 1 year out is very low as volatility is reaching all time lows.

​But this low cost to hedge might not stick around.
 
Monday's market sell-off won’t cause the price to hedge to go up by itself – not unless we have many more days like Monday. And many days like that in a row will make you wish you had hedged yourself sooner.
 
So, if you have some un-hedged positions, think about buying it now and locking it in for a year.
 
Check #2: Is your allocation in line?
 
US Equities just finished an amazing quarter. The S&P 500 was up over 9% for the 4th quarter! None of the other asset classes really kept pace with that kind of performance. So, you might have a material re-balance to execute.
 
Take a look and if any asset class is more than 3% out of whack – then consider selling the winners and rolling in to the losers. International continues to look like an asset class to own given its relative under-performance to US Equity markets.
 
Check #3: Are you using your IRA accounts to their utmost potential?
 
Remember that your tax-advantaged accounts like IRA accounts are excellent accounts for investing in spreads instead of ETF/stock ownership. You can own a ‘synthetic’ like stock position using the spread instead of the ETF itself. And you will free up a lot of capital that you can deploy in a relatively safe fixed income position like an LQD or IGHG.
 
We really like this strategy because the call spreads right now can be had for really low prices at close to ATM protection levels – and the income from the fixed income ETF can help pay for the cost to hedge.
 
It’s a new year – so make sure your portfolio is ready – especially after the roller coaster ride we endured on Monday!
 
Be hedged my friend!
 


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