Secret Strategy Eliminates Stock Losses And Retains Upside - Hint: Annuities Are Not The Answer
The "best of both worlds" is one way to look at it.
Sophisticated equity risk-management tools previously available only to the Institutional investor can now be used by savvy individuals.
Coupled with financial products designed to minimize market risk, they enable investors to eliminate two huge sources of worry.
The realistic concern that some unforeseen (accounting, geopolitical, demographic, budgetary, terrorist, etc.
) event will have a dire negative impact on your stock portfolio? Gone.
Worries caused by financial products designed to limit your upside to a mere fraction of the Market's? Gone.
How is this possible? Read on...
It's actually a simple two-step process.
In step 1, the investor uses equity holdings as collateral for a non-recourse loan, provided by a national financial services firm.
The investor still owns the stock(s), along with the ongoing upside potential.
Inasmuch as this is not a stock sale, there are no tax consequences to this part of the transaction.
Further, the loan is expressly designed so there are NO lender penalties should the investor later decide to cede the collateral.
If the stock's value declines, the investor simply "walks away" from the loan.
In step 2, the investor uses the loan proceeds to establish the hedge account.
One particularly low-risk strategy entails the purchase of a non-equity financial instrument guaranteed to provide both return OF principal and return ON principal.
Should the stock market go "down the tubes", the investor cedes the collateral and retains the hedge account, subject to some capital gains taxes.
If the market shoots skyward, the investor can keep both the hedge account, and the gain on the collateralized stock holdings.
The loan can even be restructured so as to capture the gains in the stock, and establish a new hedged account value.
Conceptually, this strategy can be likened to putting your money to work in two different places at the same time - in the equities market, AND in a "hedge" account.
Models using the 3-year performance of the S&P 500 under four hypothetical scenarios ("Hedge" vs.
"Buy and Hold") are available upon request.
Say you loaded up on Google (for example) at the IPO.
You don't want to sell, because you'd have to pay the capital gains tax.
Besides, Google might go up to infinity! Conversely, there is always the possibility of a meltdown.
Using this strategy, you can take your money off the table, and still retain your upside potential.
This strategy can also dramatically enhance the performance of a diversified portfolio.
Using this technique you can, in effect, hang on to your winners, and cull your underperformers without any significant loss.
Perhaps you have a concentrated stock position.
You recognize the inherent risk thereof, but for whatever reason do not want to sell.
Use this technique to minimize your exposure.
Or, you remember back to the early part of this century, 2001.
You can protect yourself...
Bottom Line: Every pension manager, professional money manager, and institutional investor on the planet avoids the breach of their fiduciary responsibility that would result if they did not take steps to mitigate financial disaster.
You owe it to yourself and your family to do the same.
Do you want to eliminate the possibility of losing money in the stock market, or not? Using strategies such as I've described, there is no reason for you to have money "at risk" in the market.
The question then becomes - "How much money would you invest in the stock market, if you knew you wouldn't lose?"
Sophisticated equity risk-management tools previously available only to the Institutional investor can now be used by savvy individuals.
Coupled with financial products designed to minimize market risk, they enable investors to eliminate two huge sources of worry.
The realistic concern that some unforeseen (accounting, geopolitical, demographic, budgetary, terrorist, etc.
) event will have a dire negative impact on your stock portfolio? Gone.
Worries caused by financial products designed to limit your upside to a mere fraction of the Market's? Gone.
How is this possible? Read on...
It's actually a simple two-step process.
In step 1, the investor uses equity holdings as collateral for a non-recourse loan, provided by a national financial services firm.
The investor still owns the stock(s), along with the ongoing upside potential.
Inasmuch as this is not a stock sale, there are no tax consequences to this part of the transaction.
Further, the loan is expressly designed so there are NO lender penalties should the investor later decide to cede the collateral.
If the stock's value declines, the investor simply "walks away" from the loan.
In step 2, the investor uses the loan proceeds to establish the hedge account.
One particularly low-risk strategy entails the purchase of a non-equity financial instrument guaranteed to provide both return OF principal and return ON principal.
Should the stock market go "down the tubes", the investor cedes the collateral and retains the hedge account, subject to some capital gains taxes.
If the market shoots skyward, the investor can keep both the hedge account, and the gain on the collateralized stock holdings.
The loan can even be restructured so as to capture the gains in the stock, and establish a new hedged account value.
Conceptually, this strategy can be likened to putting your money to work in two different places at the same time - in the equities market, AND in a "hedge" account.
Models using the 3-year performance of the S&P 500 under four hypothetical scenarios ("Hedge" vs.
"Buy and Hold") are available upon request.
- Even in a "Strong Bull" market with 30% returns per year (akin to Q2 1995 through Q1 1998) the hedging strategy can show >100% upside capture!
- In a "Historical Average" market with 11% per year performance, your upside capture can still be >100%.
- Performance in a "Flat" market with 0% per year returns is nearly equivalent.
- In a "Savage Bear" market with NEGATIVE 14% per year returns (akin to Q2 2000 through Q1 2003) the hedging strategy strongly outperforms as a result of its loss minimization structure.
While the equity Buy and Hold strategy results in a nearly 33% cumulative loss over 3 years, the hedged account still grows.
Say you loaded up on Google (for example) at the IPO.
You don't want to sell, because you'd have to pay the capital gains tax.
Besides, Google might go up to infinity! Conversely, there is always the possibility of a meltdown.
Using this strategy, you can take your money off the table, and still retain your upside potential.
This strategy can also dramatically enhance the performance of a diversified portfolio.
Using this technique you can, in effect, hang on to your winners, and cull your underperformers without any significant loss.
Perhaps you have a concentrated stock position.
You recognize the inherent risk thereof, but for whatever reason do not want to sell.
Use this technique to minimize your exposure.
Or, you remember back to the early part of this century, 2001.
You can protect yourself...
Bottom Line: Every pension manager, professional money manager, and institutional investor on the planet avoids the breach of their fiduciary responsibility that would result if they did not take steps to mitigate financial disaster.
You owe it to yourself and your family to do the same.
Do you want to eliminate the possibility of losing money in the stock market, or not? Using strategies such as I've described, there is no reason for you to have money "at risk" in the market.
The question then becomes - "How much money would you invest in the stock market, if you knew you wouldn't lose?"