Well, as I write this, the market is still falling.
And it could fall a lot more on April 2nd when the tariffs take place.
So, what does that mean?
It means it's time for hedging!
As a rule, I find hedging to be tricky.
On one hand, it's emotionally pleasing.
If the market goes down, I'll still make some money!
But on the other hand, hedging is frustrating when the markets go up.
To not make money in a bullish market is mentally destructive.
Let's assume, though, that you don't care if your portfolio goes up. Let's assume you simply want it to stay fairly even.
Who would think like that?
Income investors.
People who care about money they can actually spend don't need growth. They just need stability.
Thus, hedging might be a good idea for that kind of investor.
Previously, we discussed a tiny hedged income portfolio. It consisted of just two ETFs.
Those were YQQQ and YMAG. And that seemed logical.
As QQQ goes down, YQQQ will go up. And if YQQQ is going up, that should offset the fall of YMAG.
Has it worked?
I've been tracking this since September 2024 and...it's worked okay.
The total return for the Hedged Portfolio is 1.01% while the market is 1.17%. Decent.
And, of course, this Hedged Portfolio is creating income while SPY really isn't. So far, this portfolio has produced $1,700 of income--which is over a 30% yield per year if it keeps it up.
Overall, that's decent. Can we do better?
What if we substituted YMAX for YMAG? YMAX provides more income but also more volatility.
How has that worked?
Better!
Over the same time period, YMAX/YQQQ has a total return of 2.64% while SPY stays at 1.17%.
And the new portfolio also creates more income: over $2,000 in about half a year.
In summary, using a more volatile ETF with more diversification with our YQQQ hedge has beaten the market overall and produced more income.
Not bad.
I'll definitely be tracking this portfolio going forward.
Talk to you soon.
Scott
P.S. To listen to the recording to my new PPP presentation at the Festival CLICK HERE.
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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
