Market Hedging in retirement accounts?

A good chunk of my wife and I's retirement is in our respective company 401ks. Fortunately, they offer some level of self direction so we're not completely stuck with 6 mutual funds. Any recommendations on how to hedge retirement accounts effectively?

I'd like to maintain the hedge in this account, so shorting/futures, etc aren't allowed. I currently have permission for covered calls and I'm trying to add cash secured puts, long options, and spreads but we'll see if they allow it.

Any suggestions on some good insurance methods? Obviously I must accept some level of risk, but I'm trying to just avoid some catastrophic events at a reasonable price.

One idea was for longer term ratio back-spreads which cover a good chunk of the account (say SPY). The reasoning is that in a trending bull market, the backspread losses would be minimal. In a ranging market, I typically sell near term options, so that would help offset things. In the event of a big downside move, the backspread would provide a good level of protection.

Any thoughts or suggestions?

Thanks much,

 

Take a look at the SH 1x short SP's. I would stay away from the levered ones, they don't track well. Also when the VIX is low sub 17 look at buy puts on the SPY or some similar high volume index. Also the TLT is a decent hedge b/c there will be a flight to quality in times of market volatility.

 

Don't do any of those things you are thinking of doing, please. Unless you are a skilled option trader with years of experience, and even, then if it were I, I would not do these things with your retirement account. Here is what. imo, you should be doing with that money. Buy only individual stocks (or mutual dividend funds) that pay significant dividends that have a history of increasing their dividends and are in a long term rising price channel. Emphasize stocks or funds of stocks from only the most financially strong economies world-wide, and diversify. Stay on top of your investments and if the reasons you bought in the first place are no longer valid, get out and buy something else, other wise hold through think and thin.

Learn technical analysis, and use it to determine the most opportune times to buy. Keep your contributions in cash until those opportunities arise.

 

Do what you want, but under no circumstances whatever would I hedge a broad stock portfolio, unless you're one of the few that can always be right on your hedges.

I've been long the S&P for as long as I can remember and probably always will be until I die.

I can short it anytime I want, but what does that buy me and how much can it cost me? There isn't a lot of returns to play with. If you short on the wrong day you might as well have been just long bonds.

Hedge by diversification.

My favorote quote is "More money has been lost anticipating a bear market than was ever lost during a bear market."

 

The bottom is almost in. Vix could spike even higher though. Panic selling as the wolves devour.

If you're gonna hedge the time to do so was like a week ago not at the bottom.

 

oh well hell, why not just take your whole retirement account and start daytrading it. I hear those daytraders make a lot of money. Wish I could find one to manage my retirement account. As it is I'm lucky to get 10% a year. (20 year average)

 

I want to add something to my earlier post that I should have mentioned and that is that I would emphasize dividend paying stocks of commodity related companies, oil, steel, cement, grains, coffee, etc. simply because commodities traded on a world market give you built-in hedging against the ravages of long term inflation -- which is something that will be with us continuously now that all the major currencies are fiat currencies. Other good long range candidates are the sin, food and drug stocks. Diageo, Altria, Kraft, Coke, Teva, Roche, etc. These give you some measure of recession protection. Add in some Sony, Phillips, and Siemens, and perhaps some "senior care" stocks and you have the basis of a damn fine portfolio for any retirement account.

This is not rocket science, its common sense. But you don't want anything that doesn't pay a nice dividend that can be reinvested. And therein lies the Achilles heel of broad index funds, they include non-dividend paying stocks. Bogle had it just about right, but not quite.

 

Thanks for your comments, piezoe.

 

hey piezoe, I know it's been a while but this one has kept bothering me.

42% of active big cap managers outperform S&P every year

21% outperform 2 years in a row

10% outperform 3 consecutive years

That's why I don't like to see anybody invest in individual stocks unless they can devote all their time to it. Hours and hours of reading and dissecting balance sheets and reports.

Otherwise, it is very difficult to beat an index fund.

I don't like to see anyone over the age of 50 100% in stocks unless they are fabulously wealthy.

IMHO, the best way to hedge a stock portfolio is to diversify out of stocks.

Not disagreeing with you, just offering my 2 cents. (not sure how much that is worth today because I haven't checked the Dollar Index.)

 

5-10% account value on leap sds call options in uncertain market like right now. This is not investment but a hedge, if shit does hit the fan you need to know when to pull the trigger and get out to lock profit. It's a leverage on a leverage.