How I Hedged The Tariff Downturn

What a historical week for the stock market!

The S&P 500 dropped -12.14% over a stretch of six days.

Then it skyrocketed a full 9.52% in a single day on Wednesday, the ninth largest one-day upside move in recorded stock market history!

A perfect illustration of last week’s Financial Tool: the best trading days are HIGHLY likely to happen in very close proximity to the worst trading days. Those who liquidated stocks in the midst of the downturn very likely just locked in their losses.

Here’s what I did instead.

I personally manage my own assets in two main buckets: retirement (long-term) and taxable (intermediate- to short-term goals). In my retirement account, I use different strategies than I use in my taxable account, because of the difference in time horizon and goals.

In the long-term, bear markets matter far less, and capturing full upside matters much more.

In the short- and intermediate-term, bear markets are far more impactful to achieving (or not achieving) goals.

Here’s what I did for my taxable account to dramatically hedge against loss (and actually make money so far this month).

My line of logic:

• Red flags began cropping up which led me to predict a market correction coming in 2025.

• By late January, investor sentiment was so high that the red flags became too big to ignore, and I mentioned some ways to hedge downside.

• In the midst of all the positive market hype, I purchased put options to more than cover my long ETF positions. The strike price was about 5% below the current ETF value, and the time to expiration was about one year out (same concept that I teach in the course on investing).

• When markets took that fast and furious drop, I re-examined the likelihood of a coming bear market and decided the future downside is likely less dramatic than the potential future upside. I sold half the options to take profit off the table and kept them in cash.

• When markets rebounded dramatically, I reset the put options that I sold, and pocketed the profit.

As of today, I’ve made money while the S&P 500 has lost -4.4% this month.

Sound complicated? Not really. That’s why financial literacy, and investment literacy specifically, are such powerful tools. Exposure to enough knowledge and education on the subjects will make complex ideas much simpler and actionable.

While timing the market precisely is a losing game, there are tricks and strategies you can do to really rein in your risk and add a significant amount of control to how your portfolio performs over any time period that you set.