Investing with Confidence

The best way to invest with confidence is to invest money and think of the money as gone, gone into a black hole. If you want to have confidence that your investment will not loose value or that you it will actually increase in value (ignoring inflation) then you have to hedge. Hedging for most investors could be as easy as buying the VIX along with an ETF of the S&P 500. However, hedging always lowers the potential for your return on investment, therefore confidence comes at a cost. If an investor wants to feel more confident in his/her investment, then he/she must be willing to limit his/her upside. Hedging does have the advantage of allowing an investor to invest in a specific type of investment, but change the amount of risk involved. For example, an risk adverse investor may want to invest in technology stocks, but does not want to worry about the high risk involved. An investor can invest in technology stocks but change the risk/reward balance by paying for a hedge (often done by buying put options).