Hedging

Protect yourself from market volatility.

Even investors with the strongest portfolio and with investments in the strongest markets face risks. If individuals are serious about their long term goals and care about the success of their portfolio, experts encourage them to hedge their portfolio. This process is used to strategically reduce risk of unfavorable price change of an asset and market volatility.

The family office team of Goldbach Capital works with wealthy individuals to create a financial plan that aligns their values and goals with long term success. Our skilled advisors can work with you to create the hedging plan that will work best for you and your wealth.

What is Hedging?

It would be difficult to create a hedging plan before fully explaining what hedging is. As stated above, it is an investment strategy applied to a portfolio in hopes of reducing the risk of market crashes and volatile prices.

Hedging is a preventative measure applied to ensure investors are still in good standing in the event of something bad happening. Unfortunately, there is no plan that can completely prevent risks but hedging can make sure the negative hit isn’t too bad. A similar concept is car insurance. The insurance will not stop anyone from getting into an accident, but in the event that it happens, it’s not to the end of the world and some of the damage is covered.

Unlike buying insurance, an investor can not just purchase a plan that will protect their wealth when a risk comes to fruition. One can’t protect your returns by paying periodically into a plan. Hedging takes more thought and planning than that.

With proper guidance, wealthy individuals and corporations use hedging techniques to reduce exposure to risks. Essentially, investors make one investment to hedge another, strategically using instruments in the market to offset risks of unplanned price change.

Market volatility is the main risk that investors are hedging against. Markets are falling and rising every day due to both systematic and unsystematic risks. A strategically diverse portfolio can protect any investor from any markets that are failing to perform.

The goal of hedging is not to make more money. Instead, the focus is to protect from losses. The cost of a hedge is unavoidable. If one considers the cost of an option compared to the loss hit by a market crash, it is definitely a necessary cost. You could either be paying the cost of an option or lost profits from being on the losing end of a futures contract. Further, there is always the chance that a hedging strategy could go wrong so it is important to be aware of the risks of hedging – just another reason an advisor is highly recommended for this financial planning step.

Hedging Strategies

There is no “one size fits all” hedging plan that can be applied to every portfolio and unless you are an expert on every market and know which investment class is offset risk, a proper hedging strategy will require the knowledge of an adviser. Hedging is viewed as an intermediate-to-advanced financial topic, but it is vital for any investor who is serious about returns. Techniques often require derivatives, complicated financial instruments, through options and futures.

Here are some common strategies used in hedging plans:

Options
An option is a financial derivative that is a contract between the option writer. With options, the buyer can, but is not obligated to, buy or sell a security or asset at a certain period of time or at an agreed upon price.

Futures
A future is a contract that says the buyer has to purchase an asset or the seller has to sell an asset at a predetermined future date or price. A futures contract states the quality and quantity of the asset.

Diversification
Diversification is one of the cornerstones of a successful portfolio. Diverse portfolios outperform a concentrated one. By owning a large number of investments in more than one sector or asset class, investors can protect themselves from unsystematic risk, the risk that one encounters when investing in one particular company.

If there are 12 or more stocks in a stock portfolio, unsystematic risk can be nearly eliminated. Systematic risk is always lurking, however. By investing in non-correlating assets, you can protect yourself from volatility.

Diversify Offshore
One way that many investors have found success diversifying is through investing some of their wealth in offshore markets. There are markets all around the globe that are unaffected by domestic investment classes.

Certain investment classes in your home country may be experiencing a completely different market climate abroad. For example, some real estate markets in Europe are thriving but are not performing as well in others.

Goldbach Capital Family Office Services

Goldbach Capital has the knowledge and resources to become the trusted partner of wealthy families. We offer a comprehensive range of services, by combining proprietary expertise with an external pool of first-class advisors.
Our team of experts is prepared to help you with your hedging needs. Don’t let a volatile market ruin your portfolio and everything you have worked hard for. We want to see you find success with your wealth.
Each client can decide which modules he wants to engage Goldbach Capital on. Thanks to its efficient and cost-effective solutions, Goldbach Capital is a credible alternative to existing or projected in-house organizations.
While incorporating our approach in life simplification, cost-cutting, and asset protection, growth, and monitoring, our family office services integrate your family’s vision and core values to create the right wealth management plan for you.
It is okay to not know the best strategy to protect your wealth, especially when they have a large number of expensive assets. To remedy this, Goldbach Capital offers family office services to clients and families with assets under our management in excess of CHF 10 MM.

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