It’s no secret that the last few weeks have been like a roller-coaster for the stock market. In fact, 8 of the last 13 trading days for the S&P 500 have seen at least a 1% move in either direction including two days of almost 3% drops.
Times like this can weigh on investor’s minds especially for those nearing or in retirement. So, how can we reduce risk and volatility in our portfolio?
Are bonds a safe haven?
The traditional wisdom for hedging a portfolio is to buy bonds to temper the ups and downs of stocks as well as provide consistent income. While this made sense when they were yielding 5% on average, those days are long gone. The current yields for 5-year, 10-year, and 30-year treasuries are 1.47%, 1.59%, 2.07% respectively.
Keep in mind that inflation, which has been low compared to historical levels, is around 2%. Which means that these “safe havens” would have either negative or extremely low real returns. So, if not bonds then what about cash?
Cash is king… right?
Short term cash returns are in the same boat as bond yields with money markets returning around 2%. Savings accounts are faring much worse than that.
Remember that short-term cash returns are tied to the federal funds rate. With the recent rate cut and concerns over a recession this low rate environment does not appear to be changing any time soon. So, what are some other options?
What is hedged equity? In layman’s terms it means that you willingly exchange some upside potential for protection on the downside. At Blue Bell Private Wealth Management, we utilized a hedged equity strategy with our structured notes and covered call writing. This gives our clients some downside protection while still participating in the upside of the market.
If the recent market volatility has you feeling uneasy about your investments, we would be happy to sit down and review your portfolio at no cost or obligation. Just give us a call (610-825-3540) or use the speak to an advisor tab to find a time that works for you.