Investing Beyond Basics: Options, Short Selling, and Hedge Funds | Ep. 353
In this episode of Money Talk With Tiff, host Tiffany Grant dives deep into advanced investment strategies tailored for experienced investors looking to diversify and enhance their portfolios. From options trading and short selling to margin trading and hedge funds, Tiffany breaks down complex strategies, their benefits, and associated risks.
She also provides actionable tips for listeners aiming to integrate these strategies into their investment plans. If you've mastered the basics and are ready for the next level, this episode is a must-listen!
Check out the full show notes: https://moneytalkwitht.com/investing/advanced-investment-strategies/
Key Takeaways
Options Trading
- Definition: Investors gain the right, but not the obligation, to buy or sell an asset at a predetermined price before a specific date.
- Benefits: Offers leverage and flexibility, enhances returns, and manages risk.
- Risks: Complex to learn, volatile with potential for significant losses.
- Tip: Gain a solid understanding and use it as part of a diversified strategy.
- Episode on options: https://moneytalkwitht.com/podcast/introduction-to-options-trading-unpacking-the-basics-with-jason-brown-ep-264/
Short Selling
- Definition: Selling borrowed stocks with the intention of buying them back at a lower price.
- Benefits: Potential to profit in a falling market, serves as a hedge against other portfolio risks.
- Risks: Unlimited loss potential if the stock price rises, requires precise market timing and insight.
- Tip: Use cautiously and pair with other risk management techniques.
- Interactive Learning: Tiffany may reintroduce the stock market challenges, providing a risk-free way to practice these strategies.
Margin Trading
- Definition: Trading with borrowed funds to increase the size of a position.
- Benefits: Enhances purchasing power and potential returns.
- Risks: Magnified losses, margin calls may force sales at unfavorable times.
- Tip: Only for those with high-risk tolerance and solid risk management plans.
Hedge Funds
- Definition: Pooled investment vehicles that use various strategies to earn active returns.
- Benefits: Access to sophisticated strategies and professional management, potential for high returns.
- Risks: High fees, less liquidity, complex and sometimes opaque strategies.
- Tip: Thoroughly research hedge funds and managers, align investments with goals and risk tolerance.
Resources Mentioned
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Transcript
You know what it is. That's right. It's time to talk money with your money
Speaker:nerd and financial coach. Now tighten those purse strings
Speaker:and open those ears. It's the Money Talk with Tiff
Speaker:podcast. Hey,
Speaker:hey, hey. And welcome to another episode of Tiffany's Take, where I answer
Speaker:your money questions right here on the podcast. So if you want your question answered,
Speaker:go to moneytalkwitht.com Ask
Speaker:Tiffany, and I'll be more than happy to answer for you. There is an option
Speaker:on there for you to record your voice, which I'll. I would love to hear
Speaker:you all's lovely voices. So if you are brave enough,
Speaker:please, please, please make sure you send those, those
Speaker:over to me. But for the purposes of this episode, you
Speaker:all love this investment thing, so we're going to keep this investment train going.
Speaker:Someone asks, well, Tiffany, I heard the other episodes and
Speaker:that all sounds great, but I'm already an experienced
Speaker:investor. I already know this stuff. What are some things that I can do?
Speaker:And so I was like, you know what? Let me do an episode on some
Speaker:advanced investment strategies. So this is for people that
Speaker:are already investing in stuff. They're already, you
Speaker:know, in stocks, bonds, you know, whatever it is that they decided to do.
Speaker:And now they're looking for other ways to diversify
Speaker:their portfolios. And so I'll go over
Speaker:what these options are. Some benefits to them, some risk to
Speaker:them, and maybe just a quick tip for each. All right? So first
Speaker:and foremost, there's options trading. So options options give the investors
Speaker:the right, but not the obligation to buy or sell an asset at a
Speaker:predetermined price before a specific date. So
Speaker:if you already have individual stocks,
Speaker:let's say you already have Apple, right? You have one share of
Speaker:Apple. You can allow someone
Speaker:the option to buy or sell
Speaker:your asset at a predetermined price.
Speaker:So at a price that you charge, if that makes sense.
Speaker:So this strategy can be used to hedge against potential losses or
Speaker:speculate on price movements. If you know that,
Speaker:let's say Apple's gonna go down, you can give somebody the
Speaker:option to sell the Apple, but you
Speaker:still make money on top of that. So the benefits to
Speaker:this is it offers leverage and flexibility. You can enhance your
Speaker:returns and manage your risk. Some risks to this,
Speaker:it is complex to learn. You have to know what calls are, what
Speaker:puts are, what options are like. It's
Speaker:very complex. I remember I learned this when I was in my
Speaker:master's program in my investing class, and it was giving me a
Speaker:headache. I had to really sit down and wrap my mind
Speaker:around how it all works. I get it now. But it is
Speaker:very complex and it's also volatile. So there's a potential for
Speaker:significant losses if you don't do it correctly.
Speaker:I will link to an episode I did with an options
Speaker:expert who kind of explained it more in detail. But
Speaker:one tip with this is to gain a solid understanding of
Speaker:what options are and consider using them in a diversified
Speaker:strategy. So make sure options is not your only thing that you're
Speaker:doing because of the risk factor. But this can be
Speaker:something in addition to once you learn more about it.
Speaker:Another thing that you can do is short selling. So
Speaker:short selling is selling borrowed stocks with the intention of buying them
Speaker:back at a lower price. So this strategy profits from a
Speaker:decline in the assets price. So if going back to the
Speaker:first example, if you know that Apple's about to drop, you can
Speaker:short sell Apple. And as it drops, you make
Speaker:more money because you already bet that it was going to drop. Really,
Speaker:the stock market is just betting for the most part.
Speaker:So anyway, that's short selling. So some benefits to that
Speaker:potential to profit in a falling market. So it can also be a hedge
Speaker:against other portfolio risks. So if you know that
Speaker:something's going to drop, you can do a short sell on it
Speaker:and that can level out how much you lose with
Speaker:that. Some risk to it, though it's unlimited loss potential
Speaker:if the stock price rises. So if you. If
Speaker:the price rises, you start losing money because it's opposite of
Speaker:just regularly trading. And so it requires precise
Speaker:timing and market insight. Like you really have to know what's going on in the
Speaker:market in order to time things correctly, which
Speaker:I said is very hard to time the market. But
Speaker:that's part of the short selling strategy. So use this
Speaker:strategy cautiously and consider pairing it with other risk
Speaker:management techniques. Techniques. I remember when I was doing the
Speaker:stock market challenges in my Facebook group, which I might bring it back. I don't
Speaker:have the Facebook group anymore, but I might bring back the stock market
Speaker:challenges in my community. But what that is is we
Speaker:have fake money to use. And that's one thing that I use to
Speaker:try out options, to try out short selling, to try out all of these
Speaker:different things that I'm talking about today. Because there's
Speaker:no real risk involved. You can see how the money's gonna
Speaker:fluctuate. You can practice things like that. So I rec learning
Speaker:in that way where you don't have to risk your own money. So I'll let
Speaker:y'all know if I restart the Stock market challenge. Another
Speaker:thing you can do is margin trading. So that's trading with
Speaker:borrowed funds to increase the size of a position. So trading
Speaker:margins, sometimes people call it, this strategy amplifies
Speaker:potential gains and losses. So some benefits to that and enhances
Speaker:purchase purchasing power and potential returns.
Speaker:Some risks you can have magnified losses. So if you're already losing, you're going to
Speaker:lose even more because now you're trading on the margin. Margin
Speaker:calls can force investors to sell at unfavorable times.
Speaker:So when you may not have sold regularly, if
Speaker:you're trading on the margin, you might sell because
Speaker:you don't want to risk too much. So
Speaker:those are some risks involved. So I would say only use margin
Speaker:trading if you have a high risk tolerance and a solid
Speaker:risk management plan. So you have
Speaker:high risk tolerance and capacity, really, and you
Speaker:already know what you're going to do if things go south. Okay. And
Speaker:the last advanced investment strategy I'll mention is hedge
Speaker:funds. So these are pooled investment vehicles that use a variety of
Speaker:strategies to earn active returns for their investors. They can invest
Speaker:in a wide range of assets. So with hedge funds, now with
Speaker:hedge hedge funds, most of the time you do have to be an
Speaker:accredited investor, which, which I talked about in an episode. I'll have to find
Speaker:it. I'll put it in the show notes. But you usually have to be an
Speaker:accredited investor. Some benefits to this
Speaker:is access to sophisticated strategies and professional management
Speaker:and a potential for high returns. Most hedge fund
Speaker:managers, they are the ones managing the money. They
Speaker:just pool everybody's money together. So if you're familiar with the term
Speaker:Ponzi scheme, most popular person in
Speaker:recent time was Bernie Madoff. He was kind of like a hedge fund
Speaker:manager where they pull people's money, put
Speaker:it in things, and then, you know, make the money.
Speaker:But with that being said, you have to be very careful because
Speaker:sometimes it can be something like Bernie Madoff had
Speaker:going on. So that leads me to the risk. There's high fees,
Speaker:less liquidity, and it's complex strategies that may
Speaker:or may not be transparent. So you may not know what's going on.
Speaker:So my tip is to thoroughly research hedge funds
Speaker:and consider your investment goals and risk tolerance before investing.
Speaker:Make sure that you are familiar with who's going to be managing your money
Speaker:and things of that nature. Because people have lost hundreds of thousands
Speaker:of dollars in hedge funds that weren't properly ran.
Speaker:So those are a few advanced investment
Speaker:strategies that you can take advantage of. This can open doors
Speaker:to new opportunities, but they also carry more risk than
Speaker:the things that I've talked about before. So ensure that you have a
Speaker:comprehensive understanding of these methods and don't hesitate to seek
Speaker:advice from financial professionals that know what they're talking about
Speaker:to align these strategies with your overall investment goals.
Speaker:So hopefully that was helpful. And if you have
Speaker:any more questions for me, feel free to go to
Speaker:www.moneytalkwitht.com
Speaker:asktiffany and I'll be more than happy to answer. We can keep
Speaker:this investment train going or y'all can ask some new questions.
Speaker:It's completely up to, but thank you so much for listening
Speaker:and I'll see you next week. Bye. Thank you for
Speaker:listening, joining and being a part of the Money Talk with Tiff podcast this
Speaker:week. You can check Tiff out every Thursday for a new Money Talk
Speaker:podcast, but if you just can't wait until next week, you can listen to
Speaker:previous podcast
Speaker:episodes@moneytalkwitht.com
Speaker:or follow TIFF on all social media platforms at Money
Speaker:Talk with T. Until next time. Spend wise by
Speaker:spending less than you make. A word to the money wise is always
Speaker:sufficient.