Ask any wealth manager, and they will tell you that the key to building wealth is to remain invested throughout each market cycle and ignore short-term volatility. Yes, markets wax and wane, but the way to cope with this is to diversify your assets and occasionally rotate by sector, geography or asset class.
The accepted wisdom as you get older is to move away from equities and into bonds. While you will forego the higher returns typically afforded by equities, you’ll sleep better at night knowing your money is in relatively less volatile instruments and will pay you a known income.
So is that it, or is there anything else you can do with at least a part of your overall portfolio that can help achieve the investing trinity of wealth preservation, capital growth and income?
One answer could be to use derivatives as an overlay to your portfolio. However, the very mention of this word often provokes a visceral reaction from investors because of derivatives’ leverage and complexity.
“Derivatives” is a catch-all term for any financial instrument that derives its price from an underlying asset such as equities, bonds, currencies or commodities.
