Hedging Strategies | Investor's Almanac

Hedging is a risk management strategy employed by investors to offset potential losses or gains that may be incurred by a companion investment. It's not about eliminating risk entirely, but about controlling it, much like an insurance policy for your portfolio. Think of it as placing a bet on the opposite outcome of your primary investment to limit downside. Common hedging instruments include options, futures, and inverse ETFs, each with its own complexities and costs. The effectiveness of a hedge often depends on the correlation between the hedging instrument and the asset being protected, and timing is crucial to avoid overspending on protection or being caught unprotected.