Recent Posts

Hedging Your Investment Portfolio

For many, hedging conjures up thoughts of landscaping on a hot summer day. However when it comes to investing, hedging has a completely different meaning. Hedging is a strategy that is not only beneficial, but some may argue essential, as a means of protecting your investment portfolio.

While the stock market has enjoyed tremendous gains over the past several years, it is easy to forget how quickly and dramatically the market "blew up" a few years ago. The S&P 500 Index declined 53% from October 7, 2007 to March 9, 2009 and there was no shortage of pain. Even if we do not experience another market-meltdown like we all witnessed during the “Great Recession of 2008,” it is normal and actually healthy to experience a 10%-15% correction in the equities market, which may create new buying opportunities.

Equity and index options may be utilized as tools of risk management acting as insurance policies to protect your equity holdings against a decline in market prices. Similar to paying an insurance premium for your home and car to “hedge” against a catastrophic loss, investors can also protect many of their stocks, exchange traded funds, (ETF’s), and even an entire investment portfolio by utilizing a strategy known as “protective puts.” This type of option strategy is known as a hedging, and many smart institutional money managers have been utilizing this technique for years.

If you are concerned that your stock's, ETF's, or overall trend of the market is headed lower, you can purchase a protective put on thousands of individual stocks and ETF's, and this will give you the right to sell at a certain price at aspecific time in the future. This gives the investor the right to sell at a specified price, no matter how far the stock, ETF, or index fund, has declined in value.

What is particularly appealing about the protective put strategy is that you are not limiting the upside growth potential of your underlying stock, ETF, or index fund and while maintaining peace of mind of downside protection should the market decline. If you are inclined to believe the markets are poised for a decline, purchasing a putoption may be more advantageous than selling short or exiting the position outright. Utilizing a stop loss can also be frustrating. Too often you may be “stopped out” of your position just to watch it reverse itself to higher levels after already being closed out of the position.

If you buy shares of the underlying stock or ETF at the same time that you purchase a put, this strategy is known as a married put. If you purchase a put on a position that you have held for some time, the strategy is known as aprotective put. Both of these hedging strategies combine the benefits of stock ownership, which includes - dividends and a shareholder’s vote, with downside protection that a put provides and let's not forget "peace of mind, particularly in a volatile market.

While equity options may help you mitigate risk, it is important to remember that all investments carry some degree of risk and are never guaranteed. Options are not suitable for all investors. Please contact us and we will send you a free copy of the risk disclosure document Characteristics and Risks of Standardized Options that will provide you with the information that you need to know.

Financial Plan | Personalized Report | Financial Advisor - Minneapolis

Barrington's Financial Blog

About   |    Our Services   |    Financial Planning   |    Employer Retirement Plans   |    Contact

Litigation Support   |    Expert Witness   |    Pro Bono Services   |    Five Star Wealth Manager   |    Careers       

Barrington Capital Management, Inc.

3800 American Blvd West   |   Suite 1500

Bloomington, MN  55431

952-835-1000   |    800-741-0704


Barrington Capital Management, Inc. only conducts business in states and jurisdictions where it is registered or where an exemption from registration exists. This site and its contents do not constitute investment advice or a solicitation to sell securities. Past performance is not indicative of future results. This website is for informational purposes only and Barrington Capital Management, Inc. reserves the right to modify it at any time without notice. Copies of Barrington Capital Management Inc.’s Form ADV Part 2 are available upon request. Images and photographs are included for the sole purpose of visually enhancing the website. No photographs are of current or former clients and they should not be construed as an endorsement or testimonial from any of the persons in the photograph.

All materials used on this site, including all images, are copyrighted and are protected worldwide by copyright laws and treaty provisions. They may not be copied, reproduced, modified, published, uploaded, posted, transmitted, or distributed in any way, without Barrington Capital Management Inc.'s prior written permission.

Neither Barrington Capital Management, Inc., nor any of their Investment Adviser Representatives, provide tax or legal advice. Tax and legal advice should only be obtained from a qualified professional. All written content on this site is for informational purposes only. All information and ideas should be discussed in detail with an advisor prior to implementation. Examples from our news feeds, blogs or articles do not take into consideration commissions, investment management fees, miscellaneous transaction fees, tax considerations, or margin requirements, which are factors that may significantly affect the economic consequences of a given strategy. Investors should review transaction costs, margin requirements and tax considerations with their financial or tax advisor before entering into any investment or financial planning strategy. Material presented is believed to be from reliable sources; however, we make no representations as to its accuracy or completeness.

Investment Advisory services are offered by Barrington Capital Management, Inc., a Registered Investment Adviser in the states of Minnesota and Texas. Barrington Capital Management, Inc. may utilize the services of First Ascent Asset Management, LLC for certain investment portfolios. Insurance products and services are also offered through Barrington Capital Management, Inc.

Disclosure: Barrington Capital Management, Inc. is not a law firm. Robert D. Lawson and his associates are not practicing attorneys. The scope of any activities performed by Robert D. Lawson, subcontractors or employees of Barrington Capital Management, Inc. is limited to litigation consulting and litigation support.​

By using this website, you agree to our Terms of Service and Privacy Policy. View our Business Continuity Plan.

Copyright © 2021 Barrington Capital Management, Inc.

A Registered Investment Adviser  |  All Rights Reserved