To Hedge or Not To Hedge
When it comes to stock market returns over time, it has been healthy for investors to have Optimism Bias: The tendency to be over-optimistic, underestimating greatly the probability of undesirable outcomes and overestimating favorable and pleasing outcomes.
But, what about now? With 20% unemployment and a reshuffling of our economy to adjust for social distancing, quarantines, eating take-out; etc? Do we still feel as optimistic about the immediate future? Or, are we being lulled into a sense of security because of government stimulus packages?
Do we all assume we will find our way out of this mess? I know one phrase I hear a lot is, ..."when things get back to normal...", but what if it doesn't? Are we all so sure that a cure for COVID-19 is just around the corner? There is talk about a 2nd wave, but we haven't even found the crest of the first wave!
So, with all this uncertainty, is it truly wise to continue investing the same way we did before Coronavirus? Isn't that the very definition of "insanity"?
Perhaps the real question is best posed by misquoting Shakespeare's Prince Hamlet, "To hedge or not to hedge? That is the question."
Now it seems easy enough, but the truth is hedging is fraught with issues too. There are all kinds of options with all kinds of different risks, different fees; etc. Navigating this world as a Financial Advisor can be tough as well because they need the hedging manager or product to be available within their system, which requires the strategy to have been approved and have the necessary due diligence done.
If you could leverage someone who works with a wide array of asset managers who are navigating this crazy market well and can help you have portions of your portfolio you can brag about if/when things get bad again in the market, let me know. I am happy to make some introductions.
What is the other option? Tell your clients you didn't check into potential strategies that would potentially protect them if we revisit the lows of March again? That doesn't sound like a conversation worth having.