USA TODAY financial markets reporter Matt Krantz answers a new question every weekday at money. You're wise to want to prevent catastrophic losses. Can you buy insurance to protect you from catastrophic stock losses? After all, you can buy catastrophic medical insurance and get insurance to protect your home from fires, high winds and earthquakes. So why not your portfolio? The answer is yes, but it's a little different than a standard homeowners insurance policy. You don't write checks every month. Insurance for your portfolio is more like a trading or hedging strategy. There are two approaches that might work, one that's a little insurance expensive but has risks of its own and another that will cost a bit more. If you follow that rule, most of the time you'll be able to limit your losses. But this requires you to either set up and maintain stop loss orders or monitor the stocks constantly. But what if the company discloses its accounting was a total fraud and it's going bankrupt. In this case your sell order doesn't do you any good. And even if you had a sell limit order, which lets you define a specific price to sell at, the sell would never have executed. In other words, you'd still own the shares. That's where hedging and options come in. The other thing you could have done in this case is to buy a put option insurance the shares you owned. By paying a fee, or premium, you can force another investor to buy your shares at whatever price options set ahead options time. There are drawbacks with put options. First, they cost money. In addition to the premium you pay, you also have to pay a brokerage fee that's usually higher than a usual market order for a stock. And like any form of insurance, you're out the premiums you pay if nothing bad happens. The other drawback is that they expire, so you have stock keep buying new put options to replace the ones that expire. But if you're willing to put up with those drawbacks, put options can be a great way for investors to protect themselves. Matt Krantz is a financial markets reporter at USA TODAY. He answers a different options question every weekday in his Ask Matt column at money. To submit a question, e-mail Matt at mkrantz usatoday. Search How do I find it? Home News Travel Money Sports Life Tech Weather. Managing Your Money document. ASK MATT ABOUT STOCKS Got a question about the stock market or a specific stock? Click here to ask Matt your question. Read previous Ask Matt columns Need a way to track your stocks or funds? Click here to set up a free portfolio at USATODAY. Insurance for stock losses? I want to buy insurance stocks but I'm afraid of losing tons of money. Can I buy insurance? Stock Home Delivery - Subscribe Today. USA WEEKEND Sports Weekly Education Space. How do I find it? ASK MATT ABOUT STOCKS. Got a question about the stock market or a specific stock? Read previous Ask Matt columns. Need a way to track your stocks or funds? Sign up for USA TODAY's free Personal Finance e-mail newsletter. Try stop loss orders or put options. Stock USA TODAY, a division of Gannett Co.
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Marcy had, habit in this respect must have made that doctrine seem natural and necessary to the political system.
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