RT Journal Article
SR Electronic
T1 Tail-Risk Management for Retirement Investments
JF The Journal of Retirement
FD Institutional Investor Journals
SP 78
OP 86
DO 10.3905/jor.2015.2.3.078
VO 2
IS 3
A1 Vineer Bhansali
YR 2015
UL https://pm-research.com/content/2/3/78.abstract
AB One of the insights of behavioral finance is the tendency for small investors to overreact to market swings. Even a well-structured portfolio may be vulnerable to panic selling in a downturn. The article explains how a policy of tail-risk hedging could deter such behavior by putting a floor on drops in the portfolio. Instead of maintaining an overly conservative stance and an unnecessarily low share of equities, investors could hedge their portfolios by relying on options, which have become a much more feasible tool for the small investor in recent years. The article discusses the relationship between the time to retirement and the need to hedge. Investors nearing retirement have to adopt a more defensive position or hedge explicitly, but younger investors can be more aggressive and buy options with lower strike prices.TOPICS: Retirement, derivatives