I recently replaced my mp3 player (previous one broke) and just caught up on the podcasts dating back to last November. So, i've got a question for you about hedging. How is hedging different or better than having a larger portion of your portfolio in cash.

Let's say you have an S&P fund and want to hedge it with a 2x inverse S&P fund – which of course works perfectly. Your bullish, but want some protection.

So, in the market goes up 10%. You make 10% on the 75% you have in the index fund/etf and lose 20% in the inverse ETF with the other 25%. You just made 2.5%. Similarly if you had 25% of your money in the S&P ETF and and the other 75% in cash you would have also made 2.5%.

Except that in the cash case – you earn interest rather than pay fees. You also avoid the problems of the inverse ETF being twice the daily movement rather than twice the movement since you bought in.

I was trying to wait for you to bring up hedging again, but I got impatient…

Thanks,
Dave