There’s one type of investment I make regularly that I always hope to lose money on.
And frankly, I hope you lose money on it too!
In fact, last month I made a profit on this type of investment. And it was a terrible experience!
It may sound crazy, but there’s a similar investment that most of us spend money on every single month.
And in a best-case scenario, that money is gone forever. It’s a lost cause and you’ll never see that money again.
But we still do it — month in and month out — because it helps us sleep well at night, it promises to take care of our loved ones, and it keeps us from losing even more money from an unexpected event.
Think you know what this transaction is? I bet you probably already figured it out.
But did you know that a similar investment can be used to protect your retirement savings?
Read on below to see how it works!
“I Hope I Lose, But I’m Still Placing the Bet”
As a father of three teenage drivers, it seems like I’m always a bit on edge.
I want to know where my kids are, what time they’re planning to be home, and who they’re in the car with.
I’m not trying to control their lives. I just want to make sure they’re safe!
If you’ve ever been a parent of young drivers, I’m sure you understand exactly where I’m coming from. And you probably also understand the frustration of paying for car insurance for these younger drivers.
It’s incredibly expensive to insure teen drivers.
But every time I write a check to the insurance company, I pray that I’ll lose money on the deal.
Because the last thing this father wants is for one of my kids to get in an accident that results in an insurance claim.
Ironically, it wasn’t my kids who wound up cashing in on the insurance policy last month.
After a long day of running, I was on my way home when someone stopped suddenly in front of me.
I’m not sure if it was the fatigue, the tight legs, or what.
But I didn’t step on the brakes fast enough and had to choose between either bumping into the car in front of me or veering off to the right.
Thankfully, I reacted quickly enough to avoid the car that stopped in front of me. But I dented the front end of my car when I veered off to the side of the road.
Filing the insurance claim was embarrassing. But at least I got some money back to fix my car!
See what I mean about a financial transaction you hope to never profit from?
Insurance — whether auto, home, life, or any other kind — can be expensive to pay for upfront.
But if you find yourself in a situation where you really need it, the investment will be well worth your losses.
Did you know you can buy a similar “insurance policy” for your retirement?
You can! And it’s not nearly as complicated as you might expect.
The Insurance Policy That Protects Your Wealth
When it comes to insuring the things that are most important to you (like your home, your car, and especially your loved ones if something happens to you), there are standard policies you can buy.
By purchasing insurance, you’re investing in a policy that will pay you if something goes wrong.
Why not do the same thing for your retirement?
If you’re worried about a market crash — or even just an untimely pullback in the next few weeks — you can invest a small portion of your retirement into an “insurance” options contract.
Buying a put contract for a stock or an ETF that covers a broad sector of the market is a great way to ensure that no matter what happens in the market, your retirement savings will be protected.
Think about it this way…
Today, you may be holding stocks that are trading higher.
And with the economy just beginning to reopen, these stocks are likely to continue trading higher. That’s a great spot for your retirement savings to be in!
But what about the dangers of inflation… higher interest rates… and the risk of a pullback since many stocks have already advanced so much in the past year.
How will you protect your retirement against these risks?
Spending a small amount of money today to buy a put contract that covers the entire market is kind of like buying an insurance policy.
You hope that you don’t need to use it.
But if things don’t go as expected and the overall market has an “accident,” your put contract will pay off and help offset any losses you might otherwise have with the stocks you own.
I love this approach with your retirement because it lets you keep investing in the great plays that we’ve been tracking here at Rich Retirement Letter.
And it also gives you the comfort of knowing that you’re protected if things get difficult this year.