The early meanings of the word “hedge” included: to fence, to dodge, or to evade. Today, the meaning of hedge has a different conclusion: to insure oneself against loss. According to Dictionary.com, the term hedging is described as, “The practice by which a business or investor limits risk by taking positions that tend to offset each other.” If hedging sounds like some sort of insurance plan, it is in a sense.
So, what is the hype for hedging in today’s market? When the US experiences financial crises, when inflation is imminent, and when we find ourselves in the middle of an economical downturn or recession, hedging becomes a popular action taken by investors, financial leaders and households alike. The aim is to insure ourselves against any form of unexpected loss.
Types of Hedging
When we hear the word hedging in the news, we generally think of financial scenarios, but in fact there are many types of hedging. Most of them result in some form of insurance. Below are some examples of hedging:
- Investment Hedging – When you take an investment action that is meant to offset a potential loss from another investment. This action may include financial instruments such as stocks, exchange-traded funds (ETFs), forward contracts, insurance, options, and futures contracts or it may include a physical investment in precious metals such as gold or silver.
- Business Risk – If a business owner expects to lose money when the price of a held commodity declines, the owner may be able to offset the risk by selling a certain amount of that commodity in the future at a set price. This is also called a futures contract.*
- Homeowner’s Insurance – When you acquire homeowner’s insurance, you are essentially hedging yourself against break-ins, fires, theft, or natural disasters.
*According to Wall Street Oasis, in an article called Hedging, “In the 19th century, public futures markets were established to allow for transparent, standardized, and efficient hedging of agricultural commodity prices. They have since expanded to include futures contracts for hedging the values of energy, precious metals, foreign currency, and interest rate fluctuations.”
Investment portfolio managers, corporations, and individual investors find hedging techniques helpful in reducing their exposure to various kinds of risks. Before setting up a hedge against inflation, it’s important to understand it.
How Does Hedging Work?
The way hedging works, to help limit financial risk, is by holding an investment that is expected to move in just the opposite direction of a core investment, so that if or when the core investment declines, your investment hedge will offset, or at least limit, the overall loss.
During periods of economical and inflationary discourse, a common source of financial hedging involves an investment in precious metals, particularly gold, silver or a precious metal individual retirement account (IRA). In this case, you evaluate your retirement portfolio mix for diversification. In a balanced portfolio, most investors prefer at least 10-20% or their assets in precious metals.
There is no question that gold is one of the most popular metals among investors today because it can serve as a hedge against the devaluation of currency as well as inflation or deflation—a scenario that is currently playing out in the United States. Gold is often called a “safe haven” during periods of economic uncertainty. Silver also has a new popularity, as it is a more affordable metal that most any investor can acquire.
Why Should I Hedge With Gold or Silver Right Now?
Why hedge with gold or silver now? There is no better time than when a nation is at unrest to hedge with precious metals. This common investor practice has historically shown to take companies and families through periods of crises while still giving them peace of mind; to help them weather the storm so to speak.
An Investopedia article puts it this way, “An owner of gold is protected (or hedged) against a falling dollar because, as inflation rises and erodes the value of the dollar, the cost of every ounce of gold in dollars will rise as a result. So the investor is compensated for this inflation with more dollars for each ounce of gold.”
Why right now? If you are following the news, you see that our country is in the middle of many, many crises, from economics and finances to geopolitical unrest and world wars. Gold and silver are hot commodities, with gold on the rise and silver still very affordable. Act now while supplies last, as central banks and many countries are hoarding precious metals at an alarming rate. That’s the hype for hedging!
Where To Start
Review your investment portfolio and determine what percentage you can turn into precious metals. Contact Reagan Gold Group immediately and speak with a commodities specialist about physical gold or silver, or a gold or silver backed IRA, to hedge your portfolio. Take control with tangible assets that do not rely solely on the government, as we enter into a period in which our monetary system is threatened and digital currency is taking center stage. Take action soon. Call RGGUSA today.