3 ms·
To that I say you can have an even cheaper way to hedge against risk by having put options on the stock you own. Also your example assumes that all the shares
by ececconi 10y ago
To that I say you can have an even cheaper way to hedge against risk by having put options on the stock you own.
Also your example assumes that all the shares were bought at the same time and declined 50%. If you've been investing for years, the value of your gains/losses wouldn't simply be a "market crash" it would include the price at which you bought the stock at plus any dividends you reinvested. So a 50% downturn from a certain high point could be much less from how much capital you initially committed. Add to that you can take capital losses as a way to reduce tax liability in a given year.
There's enough ways to hedge without having too high of a cash drag.
- ryangittins 10y agoThe cost of inflation (at, say, 3%) is $30 for every $1k you have in your emergency account. That's $150 per year if your emergency fund is $5k, or $300 if it's $10k. I'd be surprised if the combination of the effort it takes and the fees that are charged are less than that for your method. That being said, it's sounds like you have a firm grasp on your system and it works for you. That's much more than can be said for a vast majority of people.
- ececconi 10y agoCash is a great thing, it's something you don't have to worry about and usually is FDIC insured. Personally, I'm holding onto quite a bit right now because I think much of the market might be overvalued. I think I was just trying to see if I could think out a case where you could in theory not worry about not having too much of it on hand.
- drumdance 10y agoHedging with options is great... if you know how to hedge with options. Most people don't so the six months of cash on hand is more broadly applicable as a rule of thumb.