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Matt's Market Insights

 

Buying Portfolio Insurance

 

In a previous column, I discussed the use of insurance policies as a risk management tool in various aspects of life. In particular, I asked the question, "Considering that we all understand the importance of carrying insurance to prevent against catastrophic loss on things like our homes, businesses, and ability to work, why do most investors not carry stock portfolio insurance?"

 

The answer, in many cases, at least for individual investors, is because they either don't know that insurance policies exist for stock portfolios, or they don't know how to approach purchasing one. In this article I will provide the basics of buying protection for your portfolio in the event of a major market collapse.

 

Buying portfolio insurance is generally accomplished by buying what are known as put options. Don't worry if you've never learned anything about options; my goal is to keep this simple enough for you to still understand ... Log in or subscribe to continue reading.


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