CHICAGO, Nov 26 (Reuters) – Nervous Nellies can’t stand
losing money, so they typically hedge their portfolios with
investments seeking to preserve capital. With the fiscal cliff
looming, there are a lot more of these worriers out there who
are (temporarily) looking to put together worst-case scenario
Whether you think that the fiscal cliff crisis won’t be
resolved by the end of the year or fear inflation, a
calamity-proof portfolio can hedge against any number of perils.
This would be a prudent approach for anyone primarily focused on
capital preservation or a subset — possibly 40 percent — of a
larger portfolio in which you need to temper stock-market risk.
You can create it yourself or buy it off the shelf in the form
of a mutual fund.
When looking to safeguard your money, keep in mind that this
is not an aggressive or moderate growth portfolio. If you’re
young, can afford to take some risk or have a solid guaranteed
pension waiting for you, this is not an ideal strategy for you.
One way to go is the iShares Barclays 7-10 Year Treasury
bond fund ETF, which has returned almost 8.5 percent
during the last five tumultuous years through Oct. 30. It’s up
3.6 percent year to date. While this fund has some interest rate
risk — its value will decline if rates climb — there’s
negligible credit risk if the U.S. pays back its creditors.
Because they fear the worst in terms of the dollar’s further
decline and seek safe havens from global turmoil, conservative
investors also favor gold, best purchased through the SPDR Gold
Trust, which holds bullion in a vault in London. The
fund’s price is linked to the over-the-counter market for the
pale metal. In the event of the U.S. government falling over the
fiscal cliff — triggering some $600 billion in taxes and
possibly a recession — gold would be somewhat of a refuge.