In today’s issue:

• Weekly Wisdom - From Sir John Templeton…

• Market Minute - Trumps trade war ratchets up…

• Deep Dive - Three ways to protect your portfolio while fear is in the air…

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WISDOM

SHREWD INSIGHTS

What the Wealthy Are Reading…

📈 MARKET INTEL

🚨 The Bond Bloodbath: Why Smart Investors Are Quietly Repositioning

The bond market just got wrecked in a way we haven’t seen in decades—fund managers are scrambling, and if you’re still holding, you might be the exit liquidity. Here’s where the smart money is moving next.

💰 SMART MONEY PLAYBOOK

Trade War Déjà Vu…

McKinley’s tariff blunder triggered economic turmoil—Trump’s trade war could be making the same mistake. Here’s what investors need to know before markets react.

🪖 TAX WARFARE

Tax Deadlines Ahead...

Miss a key IRS deadline, and it could cost you big. Here are the crucial dates every investor needs to mark down now.

🤖 POWER TOOLS

AI Agents Everywhere…

The right automation tools can save you hours and streamline your operations—here’s what top professionals are using to maximize efficiency.

 💎 THE GOOD LIFE

Luxury Suites You Can’t Book…

These ultra-exclusive hotel suites aren’t listed online—here’s how the elite secure them and what it takes to get in.

DEEP DIVE

Market-Proof Your Millions: The Wealthy Investor's Guide to Hedging During Trump's Trade War

While average investors panic-sell during market turbulence, the truly wealthy know how to protect their portfolios without triggering massive tax events. Here's their playbook.

Last night at 2 AM, I found myself staring at my phone like most active traders, watching futures markets plummet after the latest round of tariff announcements.

Sound familiar?

If the recent market volatility has you checking your portfolio more than your social media, you're not alone. The escalating trade tensions have sent even seasoned investors scrambling for safety.

But here's what separates the truly wealthy from everyone else: They don't sell in panic. They hedge intelligently.

Why the Ultra-Wealthy Don't Just "Ride Out" Market Storms

The conventional wisdom says "stay the course" during market turbulence. That's fine advice if you're 30 years old with a modest portfolio and you don’t need the money for 50 years.

But when you've built serious wealth and you don’t want to wait a decade for the markets to recover? The math changes dramatically.

A 50% market crash on a $5 million portfolio isn't just a paper loss—it's $2.5 million vanishing. For many, that's the difference between retiring this decade or working another ten years.

The wealthy understand a fundamental truth: Protecting capital during downturns is just as important as growing it during booms.

Why Selling Is Often the Worst Move You Can Make

When markets get rocky, your instinct might be to sell everything and hide in cash. Here's why that's usually a mistake:

• You trigger tax bills on your gains, sometimes at ordinary income rates

• You miss the inevitable recovery that typically follows crashes (often the biggest up days happen right after the worst down days)

• You're left guessing when to get back in (market timing is notoriously difficult)

The Shrewd Alternative: How to Hedge Without Selling

Instead of selling, wealthy investors use hedging strategies to protect downside while maintaining upside exposure when markets recover.

Here are the three most effective approaches I've seen work for investors with seven and eight-figure portfolios:

1. The Futures Strategy: Capital-Efficient but Requires Precision

Futures contracts let you hedge large portfolios with minimal capital. A $1 million portfolio might be able to hedge without raising capital by using the account’s margin for the hedge.

The Wealthy Investor's Edge: Gains on futures receive preferential 60/40 tax treatment (60% long-term, 40% short-term capital gains rates), potentially saving you thousands in taxes.

The Hidden Danger: Futures contracts use extreme leverage. Miscalculate your position size, and you could wipe out significant capital when markets bounce back.

Real Example: A good friend of mine hedged his $3.2M portfolio with E-mini S&P futures during the 2020 COVID crash. His hedge gained $640K during the March selloff, offsetting most of his paper losses. When he removed the hedge in April, his main portfolio recovered while he pocketed the hedge profits minus taxes. Most importantly, he was able to sleep at night!

2. The Inverse ETF Approach: Simpler but Less Tax-Efficient

For those who want simplicity, inverse ETFs like SPXU (3x inverse S&P 500) or SQQQ (3x inverse Nasdaq) offer straightforward protection.

How It Works: If the market falls 10%, a 3x inverse ETF like SPXU rises roughly 30%, offsetting losses in your core portfolio.

The Hidden Cost: These instruments experience "decay" over time, making them suitable for short-term hedging only. And gains are typically taxed as short-term capital gains.

Real Example: During the 2022 tech selloff, I moved 15% of my portfolio into SQQQ. While my tech holdings dropped 35%, the hedge gained 70%, limiting my overall portfolio decline to just 12%—enough protection to sleep at night and still participate in the recovery with a good allocation.

3. The Professional Solution: Tactical Hedge Fund Allocations

Many successful investors allocate a portion (typically 10-30%) of their wealth to hedge funds specifically designed to profit during market stress.

The Wealthy Investor's Edge: The best hedge fund managers deliver uncorrelated returns—meaning they can make money when everything else is losing. They can do this using sophisticated trading strategies or by finding uncorrelated investments (like life insurance settlement investing).

The Fine Print: You'll pay management fees (typically 1-2%) plus performance fees (often 20% of profits). And most require minimum investments of $500K-$1M.

Real Example: A family I met maintains 25% of their portfolio with two hedge fund managers who run global macro strategies, commercial real estate, and life settlements. This gives reduces their market risk while still keeping returns high.

The Tax Trap: What the IRS Doesn't Want You to Know About Hedging

Warning: If your hedge too perfectly matches your holdings, the IRS might consider it a "constructive sale" and tax you as if you'd sold your underlying assets.

The solution? Never hedge the exact inverse of your portfolio. Most wealthy investors hedge between a fraction of their exposure and use similar, but not identical hedges, which protects against catastrophic losses while avoiding IRS scrutiny.

For example, someone who owns a portfolio heavy in the Magnificent 7 could use Nasdaq futures contracts or the inverse ETF SQQQ to hedge the position without drawing scrutiny because they are similar, but not identical.

The correct way to think of it is that you’re hedging the market risk out of your portfolio, but you’re still taking the risk from each individual investment’s relative outperformance or underperformance.

My Personal Approach: The Sleep-at-Night Strategy

I've been through enough market cycles to know my risk tolerance. Here's what works for me:

• I use Keltner channels to judge when to hedge my portfolio

• When the price drops below the Keltner(-1.5) recent high, I hedge 50%

• When the price drops below the Keltner(-2.5) recent high, I hedge the other 50%

When the market recovers, I reverse it and take the hedges off as price crosses the upper channels at:

• When the price crosses the upper Keltner(1.5) line

• When the price crosses the upper Keltner(2.5) line

• I like to keep these hedge-off orders open as a stop-loss, so it happens automatically, even if I’m not actively watching the markets.

This approach has saved me millions during major market events without forcing me to time the market perfectly.

The Ultimate Hedge: What to Do When the Storm Passes

The most sophisticated investors understand that hedges are temporary insurance policies, not permanent portfolio fixtures.

When market conditions stabilize:

1. Unwind hedges gradually (never all at once)

2. Tax-loss harvest any losing positions to offset gains from successful hedges

3. Rebalance back to your strategic asset allocation

The difference between amateur and professional investors isn't whether they hedge—it's how precisely they apply and remove those hedges.

The Bottom Line: Peace of Mind Has Real Value

Some financial advisors will tell you that hedging is unnecessary—that markets always recover eventually.

They're not wrong about the recovery part. But they're ignoring a crucial reality: human psychology.

If market drops cause you enough stress to make poor decisions (like panic-selling at the bottom), then a well-designed hedging strategy isn't just protecting your portfolio—it's protecting you from yourself.

And that might be the shrewdest investment move of all.

⚡ LIGHTNING ROUND

📉 Market Pulse: Options market pricing suggests 30% chance of another 5% market drop within 30 days. Hedging costs are elevated but not extreme.

💡 Shrewd Tip: Consider trading in tax-advantaged accounts where buys and sells aren’t taxed and you can avoid the who hedging situation altogether.

🔥 Quick Win: Call your broker today and ask about "structured products" often using options—they can provide downside protection with limited cost.

P.S. We've created a comprehensive "2024 Year-End Tax Playbook" that walks you through exactly what you could be doing right now to save on next year's taxes. Get it free at: https://newsletter.shrewdinvestor.com/p/2024-year-end-tax-playbook

If you’d like us to break down your portfolio or ask a question, submit yours here: https://shrewdinvestor.com/roastme

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The content provided in this newsletter is for informational purposes only and should not be considered as specific advice for any specific individual. The information is prepared by knowledgeable individuals and is not written by certified tax professionals or investment advisors. For personalized advice tailored to your unique financial situation, consult with a qualified tax professional, financial advisor, or attorney.

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