Derivatives as a Part of Financial Planning
POSTED Fri, 08/07/2009 - 18:51 | POSTED BY Anonymous
What use are sophisticated derivatives programs to someone who does not have a huge net worth?
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tom wrote on Sat, 08/08/2009 - 17:14:
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.