Definition - What does Hedging mean?
Hedging is the act of reducing the risk of investing in a company by making additional investments, usually in the stock market. The goal is to diversify investments to ensure that if one investment under-performs, another is likely to make up for it by yielding some profit.
Insuranceopedia explains Hedging
Hedging is often compared to buying an insurance policy because both involve risk transfer. A real estate owner, for instance, might insure a building they own in order to be able to rebuild it and not suffer an extreme financial loss if it ever burned down. But if a fire never breaks out in the building, the premium payments will simply have been a kind of predictable loss for the policyholder.
The same principle applies to hedging in the world of stocks. An investor purchases shares in a company because they are confident that the shares will eventually increase in value. But because there is a possibility that it won't, the investor also buys shares from another company to offset any future losses. Those additional stocks, then, are a kind of insurance for the ones purchased initially.
How Well Do You Know Your Life Insurance?
The more you know about life insurance, the better prepared you are to find the best coverage for you.
Whether you're just starting to look into life insurance coverage or you've carried a policy for years, there's always something to learn.