Hedge against Le Pen victory / EU shakeup

Investing / Others
1

I know Mustachians are long term oriented, but let’s do a thought exercise – what if Le Pen wins in May. I don’t think it’s very likely, but I think it’s not negligible, and the long term results for Europe could be significant. What would be a good way to protect against the turmoil in Europe (stock market crash, new currencies, uncertainties everywhere)? My assumption is that Switzerland won’t be able to shield itself from the shock because of the interlocked economies.

Ideas I had

  • Move everything into CHF cash – but I am actually quite happy with my current portfolio. CHF will also go down vs. USD.
  • Move everything to USD/Gold/Bitcoin – those should be safe havens from an EU perspective - but there is still a risk of a global recession triggered by the events
  • Buy a hedge against the main European markets – for example buy puts on the DAX

Thoughts?

2

there is a very simple mustachian answer:

  1. stay with your hopefully well (=worldwide) diversified portfolio
  2. don’t change your original plans
  3. don’t bother at all

check out the investor’s alley on the MrMoneyMustace forum. i started a similar thread on trump here where i got some very nice replies. among them is this one

however I do believe that liberal policies (free trade, human rights, non-discriminatino, respectful behaviour, environment / climate protection,…) is the single best foundation for strong economies

3

Yes I know this is the pure answer. I am not disagreeing, but what I am asking myself is if Le Pen wins the EU is done which will lead to deep disruptions that are more than just stock market cycles and that sitting in CH will not help because we’re too tied to the EU.

It’s a potentially deeply disruptive event that one might not be able to recover for long. This would be more than an economic cycle that one could just sit out, this is more black swan-ish.

Given that, I wonder whether it wouldn’t be rational to think about spending 1% of my portfolio on portfolio protection (say buying put options), yes it will cost me performance, but the question is whether it’s not worth it given the magnitude of risk. I am anyways sitting on >20% unrealized gains of a seven digit portfolio, well diversified of course.

4

Besides my first answer I still think that timing the market this way is exactly what mustachian index investing should keep you from. it’s totally speculative to predict the future.

if you think that a “le pen stock market drop” would go beyond your tolerance level, then adjust your bond percentage.

Everything else gets you where you don’t want to go: behavioral finance!

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