Hedging vs timing the markets: How to plan for 2021

THERE'S no free lunch in investing: lower volatility in a portfolio must come with proportionately lower returns. Diversifying into assets that return less than equities, but are also less volatile, is the traditional academic recommendation to achieving this, and has been described as the closest thing to a free lunch.

I recently saw a fascinating chart that shows that an index of the 'Robinhood' favourite stocks has gained over 100 per cent this year, trouncing all major equity indices as well as professional investment managers' performances.

Robinhood is a commission-free day trading app that has become extremely popular this year, especially with young first-time investors. It is blamed for some strange market action in specific stocks, like Hertz being able to issue new shares after a Covid-induced bankruptcy filing, after its stock went from US$2 to US$5 in three trading days in June.