At the beginning of 2025, after two consecutive years of strong gains—especially in technology stocks during 2023 and 2024—I entered January expecting to see a wave of profit-taking. Historically, many investors delay selling winning positions until the new year to postpone tax obligations.
But this time, things played out differently. Despite some volatility, January delivered another strong rebound, and February followed with reasonably positive performance. Looking back now, from the perspective of August 2025, it’s interesting to revisit the challenges I faced when deciding how to deploy fresh capital in a market that refused to meaningfully pull back.
Waiting for a Better Entry Point
Coming into the year, I positioned my portfolio cautiously. I was prepared for a sharper correction that never materialized, which left part of my available capital unallocated to equities.
This raised an important question: How should investors approach the recurring challenge of deploying new money—or reinvesting gains—when markets remain strong?
Why I Always Hedge
Regardless of market timing, one rule remains constant for me: I always keep some form of downside protection in place. My preferred method is buying protective put options on index ETFs.
Think of puts as portfolio insurance. By purchasing them alongside individual stocks (selected using a mix of fundamentals and momentum), I set a limit on my potential downside.
- If the market declines sharply, my puts gain value, helping to offset losses.
- If the market continues higher, my risk is capped at the premium paid for the options.
While I can’t measure the hedge effect with complete precision—since my stock portfolio won’t perfectly track the index—over time the protection provides a valuable safety net.
My Step-by-Step Approach
Here’s how I handle new entries when the market is strong but hasn’t offered a clear pullback:
1. Entering with Insurance
If I allocate new capital at higher market levels, I immediately pair the purchase with puts. This ensures that my maximum loss is defined from the start.
2. Adjusting as the Market Climbs
If my positions gain around 10% to 15%, I typically:
- Sell the original puts (which have served their purpose).
- Buy new puts at the higher index level, effectively moving up my “floor.”
This acts like a trailing stop, reducing the risk of my portfolio falling below my original entry point—even if a correction hits later.
3. Scaling In Gradually
Instead of investing all capital at once, I prefer to scale in using tranches. This staggered approach helps me stay comfortable psychologically and smooths out my average cost.
Why This Matters
This layered strategy—hedging with puts and scaling in gradually—makes it easier to invest new capital without waiting endlessly for the “perfect” pullback.
It also addresses one of the biggest challenges investors face: the fear of mistiming entries. With downside protection in place, I can participate in market rallies while reducing the stress of potential corrections.
Practical Tweaks for Calm, Confident Entries
A practical way to keep discipline is to budget your hedge cost. I cap total premiums at a small percentage of portfolio value per quarter, so protection never eats all my upside.
When implied volatility (the market’s forecast of future swings) is high, I buy fewer, slightly longer-dated puts to spread cost over time. When it’s low, I prefer shorter-dated puts and roll them as needed. This keeps insurance predictable and avoids the trap of over-hedging after a scare.
To complement puts, I occasionally sell covered calls on positions that have run far, fast. A covered call means collecting income by agreeing to sell shares at a higher “strike” price if they keep rising.
The premium can partially offset hedge costs and create a buffer in sideways markets. I only write calls at levels I’d be comfortable exiting, and I avoid doing it around catalysts—like earnings—when surprise moves are more likely. This one-two punch—defined downside plus selective income—helps me stay invested with a calmer mindset.
Related Reading: Explore More Investment Insights
If this approach resonates with you, you might also like these articles:
- How the 80/20 Rule Can Help You Spot Your Next Big AI Opportunity – Learn why a small number of big winners often drive the bulk of portfolio gains.
- Adaptability Has Always Been Key — But in an AI-Driven World, It Becomes Essential – See why flexibility is the most important skill for investors today.
- How to Deal with Market Volatility: My Perspective and Proven Investment Strategies — Practical tactics to stay calm and invested, from smart sizing to timely hedges and clear exit rules.
Each article explores strategies for navigating uncertainty, managing risk, and positioning for long-term success.
Final Thoughts
Looking back from August, my biggest takeaway from January is this: markets rarely give you the perfect entry point. If you wait too long for a correction, you risk missing gains. If you rush in without protection, you expose yourself to painful drawdowns.
That’s why my balanced approach—hedging with puts and scaling in gradually—continues to feel like the right strategy for me. It gives me the confidence to put money to work even in uncertain conditions.
What about you? Do you deploy capital gradually with safeguards, or do you prefer to wait on the sidelines for larger pullbacks?
Disclaimer: This article is for informational and educational purposes only. It does not constitute financial, investment, or legal advice, and should not be taken as a recommendation to buy, sell, or hold any asset. Always conduct your own research and consult with a qualified professional before making any financial decisions. The author and publisher are not responsible for any actions taken based on the information provided in this content.
