Investor Glossary-portfolio insuranceInvestor Glossary-portfolio insuranceInvestor Glossary-portfolio insuranceInvestor Glossary-portfolio insuranceInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Portfolio Insurance

The HTML to link to this page
 

Portfolio insurance is a strategy used to reduce risk and protect stock portfolios against market declines. Portfolio insurance may entail short-selling stock index futures in a declining market, as opposed to selling the actual stock as it loses value. If the drop continues, an investor may repurchase the future at a lower price - using the profit to offset portfolio losses. Short-selling index futures as a form of portfolio insurance can offset any downturns, but could also hinder any gains. On the other hand, portfolio insurance may also entail purchasing futures in a rising market. Therefore, using portfolio insurance can be viewed as a hedging technique for a stock-only portfolio. Institutional investors often use portfolio insurance when they are dealing with a volatile or uncertain market. The ultimate goal of portfolio insurance is to prevent the value of a portfolio from dropping below a certain level. Of course, portfolio insurance is only effective if insured before the market declines. Investors should also be mindful of the IRS wash sale restrictions when implementing their portfolio insurance strategy.



Rate this portfolio insurance definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: ex-dividend, in escrow, 1031 exchange, inflation, 1035 exchange, wholly-owned subsidiary, minority interest, debt service coverage, balance sheet, cancelled check, required rate of return, covered put, option premium, stock market close, deferred tax, Zero Cost Collar, Key Rate Duration, ex-dividend date, average price per share, VIX, LIBOR, quality assurance, class C shares, FICO score, current ratio, implied volatility, stock split, 401a, reverse mortgage, limit order, command economy, real GDP, 144a, APR, annual return, dividends payable, open position, per diem, phantom income, margin rate, FTSE, labor relations, deferred revenue, EBITDA, risk management, retained earnings, liquidity ratio, diluted share, irrevocable trust


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Home | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2016 Investor Glossary - All rights reserved - Terms of Use