Jason Glisczynski, CAS

Investment Advisor Representative

Certified Annuity Specialist

PlanMyBenefit.com Preferred Social Security Counselor

Not endorsed or approved by the Social Security Administrative office or any other government agency

Glisczynski & Associates, Inc.

1320 Okray Ave

Plover, WI 54467

www.glisczynskiassociates.com

715-341-8899 ext. 15

A very common mistake that investors make is investing in the stock market without any type of exit strategy, or means to protect themselves in the event of a market downturn.  What most investors do is simply say things such as I lost a bunch of money in the market, but so did everyone else.

Although there may be comfort in thinking others are in the same boat, that doesn’t put the money back in your account.  One simple strategy that can be utilized is to deploy a defensive hedge for your investment.  Notice I said defensive hedge, not just hedge.  The hedge fund industry has degraded the term hedging, but in reality the word by definition simply means a boundary or barrier.

Thus, by having a hedge on a particular investment you create a barrier that your portfolio will not pass from a total value standpoint.

Now some of you may be thinking of a stop-loss, which is much different and less efficient.  A stop-loss order simply means that if a particular investment goes down in value to a certain point you sell that investment to stop further declines, which is not a hedge.  A stop loss is more akin to slapping a bandage on a wound after you let it bleed for quite some time.  A properly deployed defensive hedge utilizes multiple investments to create the barrier so if one investment declines in value, the other investment increases in value to make up the difference, and as the investment goes up in value, the hedge moves forward with it, more like wearing pads so you don’t get hurt in the first place.

Keep in mind that there is a cost to the hedge, and that it slows down performance in an up market.  However, we all know that markets go up and down, and if you can capture a good portion of the upside and protect yourself from the downside, statistics show you can potentially outperform the market with far less risk.

Old school stock jockeys think they are accomplishing this by purchasing bonds alongside stocks, however, we know that strategy simply does not work as both stocks and bonds can (and have in the past) fall in value at the same time.  Another common misguided strategy is to use mutual funds to diversify.  We all know that a well-diversified portfolio does very little to protect investors from significant market drawdowns.

To learn more about how to buy and hedge with your portfolio, ask your advisor.

This article was written by Jason Glisczynski and is not to be treated as investment advice.  Investment Advisory Services offered through Brookstone Capital Management, an SEC Registered Investment Advisor.