Hedge Yourself
- I’m not particularly bullish
- But I like to have a bit of passive exposure
- Here are the smartest ways to do so
S&P 500 (SPY)
The S&P 500 looks (at least) fully priced compared with US treasuries. The forward P/E ratio is high as is the PEG ration (which looks at growth as well as earnings). Large-cap US equities are up since the beginning of Fed rate hikes last March. Sentiment indicators show more greed than fear. High demand for calls and low demand for puts indicate a market in the euphoric range. So while I spend 99% — and the best 99% — of my efforts on firm-level analysis, the 1% that I spend (waste?) peeking at the macro environment doesn’t make me want exposure.
So why do I have any passive long exposure? Because I want to hedge myself somewhat. If my ideas beat the market over an extended period of time, I’d like my net worth and that of my family, philanthropy, and investors to reflect that success. But if I fail, I’d still like to have something to pay for running shoes, gym membership, and range ammo. I never go all in. I take no existential risk. And I don’t even bet it all that I’m better than the market. I own insurance and own some passive long exposure to insure against my own potential for failure and inability to beat the market.
1) Vanguard 529
If you’re married with kids, each spouse can immediately put $500k in a Vanguard Nevada 529 plan invested in their S&P 500 index fund. It charges 13 bps and is tax efficient. You can also invest another $34k per year (half from each spouse) per kid in their account. The benefit is tax-free compounding. The cost is the inflexibility of the plan’s investment (no brokerage option) and the limitations of how the money is eventually spent. That limitation is trivial to me. I never spend tax-advantaged dollars anyway because they are worth a premium to taxable dollars. Also, it is all too easy to find academic expenses for this money.
But approved uses are likely to be expanded over time. Worst comes to worst, their penalty is so small that you’ll come out ahead as long as you can first compound tax-free for a long (think decades not years) period first.
2) Market Savings
Save offers a market savings account that combines the following qualities: 1) principal is federally insured up to a quarter of a million dollars 2) gains are tax-efficient capital gains instead of income and 3) the upside can be 2–3x anything I’ve seen elsewhere. I recently set up an account, which is up over 9% within a few months. No other principal protected account comes close.
This was a good opportunity. With their quirky sign up bonus it becomes a great one. You can use this link to invest $1k and get the returns (not keep the principal) on an additional $5k for a year. This investment is literally a “heads you win / tails you tie” opportunity to essentially get a free role on the S&P 500 for the next year.
3) Moomoo
I hate the name (too unserious for what should be a serious topic). I love their sign up bonus. Whenever venture backed platforms have capital injections and need to show their backers growth, the logical solution is to simply pay customers for that growth. In this case, they’re handing out $50 for new accounts and up to 16 free shares. I invested $5k late last month to get these freebies.
I bought Seneca Foods (SENEA) for reasons consistent with this thesis. I like the stock but like the trading app somewhat less. My intention is to take the money (and free shares) and run — to the next brokerage offering a rich sign up bonus. While I picked a specific stock I wanted in my personal account and while the trivial size makes the choice pretty irrelevant, one can also do this with SPY to harvest this and other sign up bonuses.
4) E-L Financial
This one trades in Canada under ticker “ELF”. It is a small, illiquid public float of a company controlled and mostly owned by the Jackman family. Their control causes shares to trade at a massive discount, but my view is that such a discount is undeserved. They’re honest stewards well aligned with outside owners. They trade at about half of their NAV. They own a life insurer, a few closed-end funds, and investments including 1.65 million shares of the Vanguard S&P 500 (VOO).
Conclusion
I’m not that excited about the overall equity market from here, but like a bit of a hedge against my active management.
TL; DR
Some long passive exposure is better than none. I like it via a Vanguard 529, E-L Financial, Market Savings, and as a trade to harvest sign up bonuses such as Moomoo’s.
