Derivatives as a Part of Financial Planning

Derivatives can be used for speculation or they can be used for hedging.

For the purposes of financial planning, the hedging part is important.

You don't need to have a high net worth to receive value from hedging. For example, anyone within 5 - 10 year of retirement with any amount of assets should be very concerned about market risk and sequence of returns risk.

Hedging sequence of returns risk is ultimately achieved through derivatives--whether a put option purchased by an individual or a larger hedging program put together by an insurance company to provide the living benefits that accompany variable annuities.