Hedging your personal assets
No. Such companies don't exist. Derivative instruments have evolved over a period and there is a market place, stock exchange with members / broker with obligations etc clearly laid out and enforceable. If I understand correctly say the house is at 300 K. You would like a option to sell it to someone for 300 K after 6 months. Lets say you are ready to pay a premium of 10K for this option. After 6 months, if the market price is 400 K you would not exercise the option and if the market price of your house is 200 K you would exercise the option and ask the option writer to buy your house for 300 K. There are quite a few challenges, i.e. who will moderate this transaction. How do we arrive that house is valued at 300K. There could be actions taken by you to damage the property and hence its reduction in value, etc. i.e. A stock exchange like market place for house is not there and it may or may not develop in future.
he general advice I get is that the younger you are the more higher risk investments you should include in your portfolio. I will be frank. This is a rule of thumb given out by many lay people and low-level financial advisors, but not by true experts in finance.  It is little more than an old wive's tale and does not come from solid theory nor empirical work.  Finance theory says the following: the riskiness of your portfolio should (inversely) correspond to your risk aversion.  Period. It says nothing about your age.  Some people become more risk-averse as they get older, but not everyone.  In fact, for many people it probably makes sense to increase the riskiness of their portfolio as they age because the uncertainty about both wealth (social security, the value of your house, the value of your human capital) and costs (how many kids you will have, the rate of inflation, where you will live) go down as you age so your overall level of risk falls over time without a corresponding mechanical increase in risk aversion. In fact, if you start from the assumption that people's aversion is to not having enough money at retirement, you get the result that people should invest in relatively safe securities until the probability of not having enough to cover their minimum needs gets small, then they invest in highly risky securities with any money above this threshold. This latter result sounds reasonable in your case.  At this point it appears unlikely that you will be unable to meet your minimum needs--I'm assuming here that you are able to appreciate the warnings about underfunded pensions in other answers and still feel comfortable.  With any money above and beyond what you consider to be prudent preparation for retirement, you should hold a risky (but still fully diversified) portfolio.  Don't reduce the risk of that portion of your portfolio as you age unless you find your personal risk aversion increasing. I think your premise is slightly flawed. Every investment can add or reduce risk, depending on how it's used. If your ordering above is intended to represent the probability you will lose your principal, then it's roughly right, with caveats. If you buy a long-term government bond and interest rates increase while you're holding it, its value will decrease on the secondary markets. If you need/want to sell it before maturity, you may not recover your principal, and if you hold it, you will probably be subject to erosion of value due to inflation (inflation and interest rates are correlated). Over the short-term, the stock market can be very volatile, and you can suffer large paper losses. But over the long-term (decades), the stock market has beaten inflation. But this is true in aggregate, so, if you want to decrease equity risk, you need to invest in a very diversified portfolio (index mutual funds) and hold the portfolio for a long time. With a strategy like this, the stock market is not that risky over time. Derivatives, if used for their original purpose, can actually reduce volatility (and therefore risk) by reducing both the upside and downside of your other investments. For example, if you sell covered calls on your equity investments, you get an income stream as long as the underlying equities have a value that stays below the strike price. The cost to you is that you are forced to sell the equity at the strike price if its value increases above that. The person on the other side of that transaction loses the price of the call if the equity price doesn't go up, but gets a benefit if it does. In the commodity markets, Southwest Airlines used derivatives (options to buy at a fixed price in the future) on fuel to hedge against increases in fuel prices for years. This way, they added predictability to their cost structure and were able to beat the competition when fuel prices rose. Even had fuel prices dropped to zero, their exposure was limited to the pre-negotiated price of the fuel, which they'd already planned for. On the other hand, if you start doing things like selling uncovered calls, you expose yourself to potentially infinite losses, since there are no caps on how high the price of a stock can go. So it's not possible to say that derivatives as a class of investment are risky per se, because they can be used to reduce risk. I would take hedge funds, as a class, out of your list. You can't generally invest in those unless you have quite a lot of money, and they use strategies that vary widely, many of which are quite risky. In the case you propose, a taxable windfall, your best hope is to marry someone who has his/her own loss of about the same amount. This advice would work if your gain is a 10 bagger, as you suggest, but not for a lottery. In the dot com bubble, I heard of more than one couple that got married under these conditions. As far as other gains, it would be tough to contrive a situation that would give you such a tax offset without taking on a huge risk, far greater that the $133K in tax you might save. If you believe the stock market will be down 20-30% in the next few months, sell your stock holdings, buy a protective put option for the value of the holdings that you want to keep. That would be hedging against it. Anything more is speculating that the market will fall. If you look at history, it shows that the more people predict corrections the less was the chance they came. That doesn't prove it stays so, though. 2017 is not any different than other years in the future: Independent of this, with less than ten years remaining until you need to draw from your money, it is a good idea to move away from high risk (and high gain); you will not have enough time to recover if it goes awry. There are different approaches, but you should slowly and continuously migrate your capital to less risky investments. Pick some good days and move 10% or 20% each time to low-risk, so that towards the end of the remaining time 90 or 100% are low or zero risk investments. Many investment banks and retirement funds offer dedicated funds for that, they are called 'Retirement 2020' or 'Retirement 2030'; they do exactly this 'slow and continuous moving over' for you; just pick the right one. "This is a very interesting question.  Unfortunately, in the way you wrote the question the answer is no.  Essentially, you would be asking someone to give you a ~20% return for your cash on something that is almost guaranteed when holding your cash only gets them a <1% return.  Would anyone take the other side of that deal? Interestingly though, you can to some extent hedge surprises in health care costs.  For instance, investing in the healthcare industry as David Rice suggests is a partial hedge.  The prices of those industry stocks already has future expected cost increases included. However, if costs were to jump even higher than expected you would gain some of the added cost you would pay in healthcare back. Not that I recommend this strategy, as you lose diversification, but this is a valid and reasonable reason to slightly overweight american healthcare companies for someone in your situation.   Note that the Wiki article you mention talks about hedging surprises as well.  ""If at planting time the farmer sells a number of wheat futures contracts equivalent to his anticipated crop size, he effectively locks in the price of wheat at that time.""  Thinking that way you may actually be able to buy health insurance now for two or three years in the future essentially locking in expected price increases today.  Probably not the answer you were looking for, but the best analogy for what financial hedging truly does." I think it is too early to tell. They changed so many variables in an incredibly complex system, and a lot of it will depend on how the requirements in the legislation look once the bureaucrats and insurance companies get a chance to interpret them and implement them as policy. My gut feeling is that for most people, you should plan on some pretty price increases for insurance in the next few years as insurance companies try cover the costs of removing lifetime caps and insuring people with pre-existing conditions. That said, the personal finance issue that you really should be planning for is your portfolio not your insurance costs. The bill includes almost a 4% increase in capital gains taxes. "Sure, and everything you've said here is absolutely true for a fully immunized portfolio.  What the OP suggests is that it's simply impossible to effectively defease future obligations.  He is pitching not so much finance as he is a political philosophy that can be summed up by ""defined benefit plans are impediments to competition.""  In the OP's world, the business of life and casualty insurance would implode within a few years of inception.  Actuarial science would be dismissed as mathematical witchcraft.  We would see company after company laid low by overwhelming future obligations against which they have no defense.  Rather, what we have are instances of *poor financial management.*  As opposed to the fine examples set by insurers, endowments, foundations, etc. (all of which can remain successful ongoing concerns in perpetuity), what we have are businesses who decided that it would be better to cut corners and bet on risk, rather than to take the safer (but more expensive) route and effectively manage their assets in relation to their liabilities.    He then goes on to suggest that, in laying off their problems, business are simply ""doing everybody a favor.""  These business (and their highly educated financial managers) are taking their flaming piles of shit, handing it over to the guy whose expertise most likely involves the repetitive operation of a machine, and saying ""here you go, this is a good deal for you, enjoy managing your future!""" "I would want a clause that says you can't endanger my portfolio, but that would never happen I guess. I've just started what I hope to be a long and successful career and I'm considering opting out of the company pension and managing it myself. Some economics people want to make this an ""every man for himself"" situation.   Right now I pay $400 per month into a pension, and at any point it may not exist. I don't think I'm alone in the idea that I can manage my own portfolio at least as well as that, and my own pension will stay with me no matter what, no matter how many companies I work for." "Pay off the credit cards.  From now on, pay off the credit cards monthly.  Under no circumstances should you borrow money.  You have net worth but no external income.  Borrowing is useless to you.   $200,000 in two bank accounts, because if one bank collapses, you want to have a spare while you wait for the government to pay off the guarantee.  Keep $50,000 in checking and another $50k in savings.  The remainder put into CDs.  Don't expect interest income beyond inflation.  Real interest rates (after inflation) are often slightly negative.   People ask why you might keep money in the bank rather than stocks/bonds.  The problem is that stocks/bonds don't always maintain their value, much less go up.  The bank money won't gain, but it won't suddenly lose half its value either.  It can easily take five years after a stock market crash for the market to recover.  You don't want to be withdrawing from losses.   Some people have suggested more bonds and fewer stocks.  But putting some of the money in the bank is better than bonds.  Bonds sometimes lose money, like stocks.  Instead, park some of the money in the bank and pick a more aggressive stock/bond mixture.  That way you're never desperate for money, and you can survive market dips.  And the stock/bond part of the investment will return more at 70/30 than 60/40.   $700,000 in stock mutual funds.  $300,000 in bond mutual funds.  Look for broad indexes rather than high returns.  You need this to grow by the inflation rate just to keep even.  That's $20,000 to $30,000 a year.  Keep the balance between 70/30 and 75/25.  You can move half the excess beyond inflation to your bank accounts.  That's the money you have to spend each year.  Don't withdraw money if you aren't keeping up with inflation.   Don't try to time the market.  Much better informed people with better resources will be trying to do that and failing.  Play the odds instead.  Keep to a consistent strategy and let the market come back to you.  If you chase it, you are likely to lose money.   If you don't spend money this year, you can save it for next year.  Anything beyond $200,000 in the bank accounts is available for spending.  In an emergency you may have to draw down the $200,000.  Be careful.  It's not as big a cushion as it seems, because you don't have an external income to replace it.   I live in southern California but would like to move overseas after establishing stable investments.   I am not the type of person that would invest in McDonald's, but would consider other less evil franchises (maybe?).   These are contradictory goals, as stated.  A franchise (meaning a local business of a national brand) is not a ""stable investment"".  A franchise is something that you actively manage.  At minimum, you have to hire someone to run the franchise.  And as a general rule, they aren't as turnkey as they promise.   How do you pick a good manager?  How will you tell if they know how the business works?  Particularly if you don't know.  How will you tell that they are honest and won't just embezzle your money?  Or more honestly, give you too much of the business revenues such that the business is not sustainable?  Or spend so much on the business that you can't recover it as revenue?   Some have suggested that you meant brand or stock rather than franchise.  If so, you can ignore the last few paragraphs.  I would be careful about making moral judgments about companies.  McDonald's pays its workers too little.  Google invades privacy.  Exxon is bad for the environment.  Chase collects fees from people desperate for money.  Tesla relies on government subsidies.  Every successful company has some way in which it can be considered ""evil"".  And unsuccessful companies are evil in that they go out of business, leaving workers, customers, and investors (i.e. you!) in the lurch.   Regardless, you should invest in broad index funds rather than individual stocks.  If college is out of the question, then so should be stock investing.  It's at least as much work and needs to be maintained.   In terms of living overseas, dip your toe in first.  Rent a small place for a few months.  Find out how much it costs to live there.  Remember to leave money for bigger expenses.  You should be able to live on $20,000 or $25,000 a year now.  Then you can plan on spending $35,000 a year to do it for real (including odd expenses that don't happen every month).  Make sure that you have health insurance arranged.   Eventually you may buy a place.  If you can find one that you can afford for something like $100,000.  Note that $100,000 would be low in California but sufficient even in many places in the US.  Think rural, like the South or Midwest.  And of course that would be more money in many countries in South America, Africa, or southern Asia.  Even southern and eastern Europe might be possible.  You might even pay a bit more and rent part of the property.  In the US, this would be a duplex or a bed and breakfast.  They may use different terms elsewhere.   Given your health, do you need a maid/cook?  That would lean towards something like a bed and breakfast, where the same person can clean for both you and the guests.  Same with cooking, although that might be a second person (or more).  Hire a bookkeeper/accountant first, as you'll want help evaluating potential purchases.  Keep the business small enough that you can actively monitor it.   Part of the problem here is that a million dollars sounds like a lot of money but isn't.  You aren't rich.  This is about bare minimum for surviving with a middle class lifestyle in the United States and other first world countries.  You can't live like a tourist.   It's true that many places overseas are cheaper.  But many aren't (including much of Europe, Japan, Australia, New Zealand, etc.).  And the ones that aren't may surprise you.  And you also may find that some of the things that you personally want or need to buy are expensive elsewhere.  Dabble first and commit slowly; be sure first.  Include rarer things like travel in your expenses.   Long term, there will be currency rate worries overseas.  If you move permanently, you should certainly move your bank accounts there relatively soon (perhaps keep part of one in the US for emergencies that may bring you back).  And move your investments as well.  Your return may actually improve, although some of that is likely to be eaten up by inflation.  A 10% return in a country with 12% inflation is a negative real return.   Try to balance your investments by where your money gets spent.  If you are eating imported food, put some of the investment in the place from which you are importing.  That way, if exchange rates push your food costs up, they will likely increase your investments at the same time.  If you are buying stuff online from US vendors and having it shipped to you, keep some of your investments in the US for the same reason.  Make currency fluctuations work with you rather than against you.   I don't know what your circumstances are in terms of health.  If you can work, you probably should.  Given twenty years, your million could grow to enough to live off securely.  As is, you would be in trouble with another stock market crash.  You'd have to live off the bank account money while you waited for your stocks and bonds to recover." "Your questions seek answers to specifics, but I feel that you may need more general help. There are two things, I feel, that you need to learn about in the general category of personal finance.  Your asking questions about investing, but it is not as important, IMHO, as how you manage your day-to-day operations.   For example, you should first learn to budget.  In personal finance often times ""living on a budget"" equates to poor, or low income.   That is hardly the case.  A budget is a plan on how to spend money.  It should be refreshed each and every month and your income should equal your expenses.  You might have in your budget a $1200 trip into the city to see a concert, hardly what a low income person should have in theirs. Secondly you need to be deliberate about debt management.  For some, they feel that having a car payment and having student loans are a necessary part of life and argue that paying them off is foolish as you can earn more from investments.  Others argue for zero debt.  I fall in the later.  Using and carrying a balance on high interest CCs and having high leases or car payments are just dumb.  They are also easy to wander into unless you are deliberate.   Third you need to prepare for emergencies.  Engineers still get laid off and hurt where they are unable to work.  They get sued.  Having the proper insurance and sufficient reserves in the bank help prevent debt. Now you can start looking into investments.   Start off slow and deliberate with investing.  Put some in your company 401K or open some mutual funds on the side.  You can read about them and talk with advisers, for free, at Fidelity and Vanguard.  Read books from the library. Most of all don't get caught up in too much hype.  Things like Forex, options, life insurance, gold/silver, are not investments.  They are tools for sales people to make fat commissions off the ignorant.      You are fortunate in that Engineers are very likely to retire wealthy.  They are part of the second largest demographic of first generation rich.  The first is small business owners.   To start out I would read Millionaire Next Door and Stop Acting Rich.  For a debt free approach to life, check out Financial Peace University (FPU) by Dave Ramsey (video course).  His lesson on insurance is excellent.   I am an engineer, and my wife a project manager we found FPU life changing and regretted not getting on board sooner.  Along these lines we have had some turmoil, recently, that became little more than an inconvenience because we were prepared." This is just an addition to base64's answer.  In order to maximize your overall wealth (and wellbeing) in a long run, it is not enough to look only at the expected value (EV). In his example of always keeping $9850 or having $10000 99% of the time, EV in the second case is greater ($9900 > $9850) and if you are Bill Gates than you should not take an insurance in this case. But if your wealth is a lot less than that you should take an insurance. Take a look at Kelly criterion and utility functions. If I offer you to take 100 million dollars (no strings attached) or to take a risk to get 200 million dollars 60% of the time (and $0 40% of the time), would you take that risk? You shouldn't but Bill Gates should take that risk because that would be a very good investment for him. Utility functions can help you choose if you want an insurance or not. Maybe you want to insure your house because the value of the house is a large percentage of your wealth but on the other hand you don't need to insure your car if it is very easy for you to afford another one (but not easy to afford another house). Lets calculate what your wealth should be in order not to take this $150 insurance on a $10000 item. If you pay $150 for an insurance you have guaranteed $9850. But choosing not to take an insurance is the same as betting $9850 in order to gain $150 99% of the time. By using Kelly criterion formula fraction of the wealth needed to make this bet is: [p*(b+1)-1]/b = [0.99*(150/9850+1) -1]/ (150/9850) = 1/3.  That means that if your wealth greater than $29950 you don't need an insurance. But if you want to be sure it is advised to use fractional Kelly betting (for example you could multiply fraction by 1/2) and in that case if your wealth is more than $59900 you don't need an insurance for this item. It's not really like im am going to lose my money unless I was doing penny stocks. And throwing away that much for a vacation when student debt will probally exist in my life later on appears not wise. "If your meaning of ""asset protection"" is buying gold and canned food in the name of a Nevada LLC because some radio guy said so, bad idea. For a person, if you have assets, buy appropriate liability limits with your homeowner/renter insurance policy or purchase an ""umbrella"" liability policy. This type of insurance is cheap. If you don't have assets, it may not be worth the cost of insuring yourself beyond the default limits on your renter's or homeowner's policy. If you have a business, you need to talk to your insurance agent about what coverage is appropriate for the business as a whole vs. you personally. You also need to talk to your attorney about how to conduct yourself so that your business interests are separated from your personal interests." "There is no ""standard"" way for personal accounting.  However, GNUCash default accounts set includes ""Expense: Adjustment"".  It is usually used by the community for reconciliation of unknown small money lost."