"You might not gain anything in a down market, but you might reduce money disappearing out of your account as fast as you would have if it was all in stocks," said Craig Cowles, a certified financial planner and partner at Cardinal Wealth Advisors. "If the market goes down 5 percent, your [portfolio] might have only declined 2.5 percent."
Generally, the need to hedge against risk is based on your risk tolerance, along with your risk capacity, which simply means how long until you need the money you have invested. The shorter your "time horizon," the lower your risk capacity.
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"If it's going to be for a down payment on a house, or for a vacation home or anything you need it for soon, I'd say don't have it in [stocks]," said Tom Balcom, CFP and founder of 1650 Wealth Management. "A lot of people look at investing as a short-term thing. That's gambling with your investments."
On the other hand, if you are saving for retirement and don't need the money for a decade or more and you can stomach the idea of your stock-laden portfolio dropping in value if the market drops, you probably don't need to hedge against risk. After all, say most advisors, the upside potential for holding on to stocks for the long term outweighs market volatility in the short term.