Three ways to hedge your bets in volatile markets

The volatility in the markets means that even the most carefully-constructed portfolios are vulnerable to share-price drops. Here, Tim Bennett looks at what investors can do to hedge their bets when the markets are so entirely unpredictable.

There are plenty of reasons to fear for the health of the global economy, from the possibility of a double-dip in the US to a slide in the global shipping index. So what can investors do to protect their painstakingly constructed portfolios from further share-price falls?

Sell now, is one answer. But it's not a helpful one. After all, if you've been buying the defensive income stocks we favour, you'll give up any dividends. Also, you may trigger a capital gains tax bill not to mention the fact that you can't be sure of selling at precisely the right time. A better bet is to hedge your portfolio against price falls. Here are three ways to do it:

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.