Hedging Your Investments

Many investors are too quick to dismiss hedging -- aligning your portfolio so that it does well in both good and bad times -- as a sophisticated tool employed by the mega investment funds. Thanks to the huge popularity in exchange traded funds (ETFs), the notion of hedging has apparently become easier to attain for the everyday investor. Inverse ETFs such as those that promise to zig when the market zags have become popular. And if those weren't enough, you now have leveraged inverse ETF's that promise to perform twice or three times the opposite of what the market does.

Albert Einstein astutely observed that all things should be made as simple as possible "but not any simpler." This is sage advice: The more complex investing becomes the more dangerous and risky it gets. Consider John Paulson, the famous hedge fund investor who obliterated the market a couple of years back by betting against housing and subprime credits while earnings billions for himself and his clients. Paulson's big bet paid off that year and won him worldwide accolades. Yet in 2011, similar big bets Paulson made sent his flagship fund down by over 50%. Basic math tells us that Paulson's fund will have to advance by 100% before those investors are back at break-even....432 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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