Also, if your stocks have had recent high returns, they may be more at risk for a near-term correction, he says. You might consider taking profit in some of them. You can offset risk with some safer assets. Hedging Your Bets Diversification does only so much to reduce risk. Sophisticated investors often try to hedge their investments especially if they don t have much time.
Pros often use options and futures to hedge positions.
These pay a fixed interest rate. They also have their face value adjusted for inflation over their lives. Unlike other investments, there s no inflation risk. Another way to hedge against stocks potential downside is with stock index options. Folks might have a portfolio made up of bonds and stock index call options exercisable at the current value of the index.