How do you FEEL about the stock market?
Do you FEEL that it is too high and ready for a big fall?
Well, people may love to share their FEELINGS about investing. Yet at Fiduciary Financial Partners, we spend a great deal of our time separating financial emotion from financial reality.
FEELINGS should not enter into the discussion. It can be challenging to do that with a constant swirling of dramatic news media stories. We get that. Still, at the end of the day, finance and investing is about thoughtful, rational planning. Not your "gut". Not a knee-jerk reaction to headlines.
We really don't like when people compare investing to betting. However, let us use an analogy from the world of football.
If the Bears are playing the New England Patriots, you have one of the worst teams in football playing the reigning Super Bowl champions. We'd be crazy to bet on the Bears without knowing the point spread. Because betting on the Bears without this knowledge would be like throwing money away, right?
By the same token…
Why do people throw money away on market timing decisions…without checking the options market?
Selling stocks is one way to plan for (supposed) down markets.
Another way is to buy a Put Option or protection against down markets.
How much does it cost? It's hard to sell our stocks without at least knowing the answer to this question.
For example, on March 7th, 2017, to cover the downside of stocks with a value of $237,000 (it makes the math easy: We are using an exchange-traded fund called SPY*) to the third week in September would cost $9,800 or 4.14% of my position.
What if the market goes up, or stays sideways?
You lose your $9,800.
Does this happen often?
Yes, most of the time.
The point of this is not to make you an expert on the Options market. The point is to show that $9,800 represents a TRUE cost of reducing risk. It is foolish to think that cost does not show up in other ways if you chose to sell your stocks instead of using a Put option.
What other ways does it show up?
- Opportunity Cost
- Taxes
- Transaction Cost
When you work with Fiduciary Financial Partners, you plan from a point of view that's designed to be in your best interests. There's no bias involved in the way of a sales quota or some other type of firm-wide initiative that you can't see. Which may leave you with quite the positive emotion – and in that particular instance, we're perfectly OK with you having feelings.
Experience a fresh approach to investing with emotion and hard selling taken out of the equation. Talk to Fiduciary Financial Partners today at 630.780.1534.
Fiduciary Financial Partners, LLC is a Registered Investment Adviser. This blog is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Fiduciary Financial Partners, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Fiduciary Financial Partners, LLC unless a client service agreement is in place.
*source: TD Ameritrade Options Chain after close of market on 3/7/2017