While we don’t know the future, it is wise to remain prepared against uncertainties. For instance, you don’t know how long you will be able to stay healthy or if you will experience a job loss.
Further, you should be very skeptical right now about the economic strength of the world’s largest economies such as China, Europe, Japan and the USA. These nations have averted economic pain through quantitative easing, economic policy and market controls but it doesn’t mean we are not vulnerable to a correction.
So what is hedging and how does one go about it?
According to Investopedia, “’Hedging’ or ‘Hedging risk’ is making an investment to reduce the risk of adverse price movements in an asset. In other words, investors hedge one investment by making another.”So how do you hedge against life’s economic uncertainties?
First, an easy example is buying insurance to protect your family against any loss of your income can be considered a form of hedging.
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