Equity Indexes for Portfolio Management (Ep. 2)

[Music] so welcome back to the building your portfolio crash course jim schultz here with you guys and we are about to dive into episode number two the power of using indexes first back in episode number one where we kind of built up our foundation looking at portfolio theta looking at portfolio delta well what we're going to do now as we look out to build out the specific positions in our portfolio we're gonna start to fill in some of the mortar between those foundational bricks so let's do it man let's not waste any more time let's dive right in to episode number two the power of using indexes so the real power behind using indexes it's actually really simple it's going to give you a smoother ride from start to finish basically by definition this has to be the case right because when we look at indexes we're talking about you know s p 500 you know nasdaq you know dow and all these other guys these guys by definition are comprised of hundreds and hundreds or thousands and thousands of different individual stocks now formally this difference between indexes and individual stocks is referred to as systematic risk and unsystematic risk in the academic ranks of finance now keep in mind that these labels are a lot more theoretical than they are practical so for us as traders we need to slow ourselves down a bit before we attach too much weight to what we have here but nevertheless these are very very useful when it comes to understanding the differences between indexes and individual stocks now systematic risk or market risk this is the risk that is inherent in simply having some capital at stake in the financial markets it is unavoidable and in many ways it's simply a cost of doing business now unsystematic risk or a single stock risk is very different this is going to be risks that are unique or individual to that one specific stock therefore they are avoidable and they only become relevant if you happen to have a position on in that particular equity all right easy enough well let's dive in a little bit deeper and work through some examples of each one of these guys so starting with market risk some common examples would be economic data global growth or lack thereof or maybe interest rates obviously these numbers can have varying impacts and hit some indexes more significantly than others but the idea is still that these risks are spread over the different stocks that make up the index now single stock risk is a little bit different with some common examples being an earnings a report maybe a product or service success or failure or really any major company news these are only going to impact one or a small group of stocks significantly while any stocks that are not directly impacted or related to these events they're just going to go on business as usual therefore by focusing on indexes first before you dive into individual stocks you are only going to be exposed to market risk so then by definition as a result of that you are naturally going to have or you can expect to have a much smoother ride from start to finish all right fair enough but you might now be asking jim which indexes should i focus on well let's have a look so let's think about the indexes in three different levels now these aren't formal or official levels they're really just for us but i think it will help to demarcate between the different kinds of indexes so level one these are going to be your major equity players spy the s p 500 qq the nasdaq iwm the russell 2000 and dia the diamonds or the dow jones level two these are going to be your major non-equity players like gld which is gold like tlt which is bonds like uso which is oil and slv which is silver and then lastly level three these could be considered your international indexes or maybe your sector indexes like ewz which is brazil and fxi which is china and then xle and xlu and a number of other x indexes that represent different sectors in the u.s economy now of course this was not an exhaustive list that was intended to represent every single index that you could potentially trade but i do think it's a reasonable starting point now that you have this lean on this list use this list and turn to all the strategies and the tools that you already have in your back pocket when it comes to stock screening strategy selection or trade entry and if you don't happen to have any tools or strategies in your back pocket then hey let me offer up a shameless plug for our very first crash course from last fall that will help you do exactly that wow so believe it or not but you already made it to the end of episode number two inside of this crash course the power of the index guys if i can help in any way shape or form please reach out to me you can email me jay schultz at tastytrade.com we can connect on twitter i'm just at j schultz f3 either way would be a great way to reach out to me with any questions or comments or anything that you might have that you want to discuss some of you at this point however you might be thinking jim wait a minute what if i don't see enough opportunities with indexes what if i don't see enough opportunities with indexes to hit my portfolio theta or portfolio delta goals the very same goals that you showed me how to do back in episode one you know guys it's almost like i've done this before because i had a sneaking suspicion that you might have that question so i suppose i will see you in episode number three adding individual stocks we'll see you there you

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Keywords: portfolio returns, portfolio risk, options portfolio, stock market indexes, spy, qqq, bond market indexes, equity index, what is an equity index, list of equity indexes, equity index example, equity index products, US Equity Index, portfolio management, portfolio manager, portfolio management definition, what is portfolio management in finance, portfolio management course, portfolio management process, how to manage an investment portfolio, investment and portfolio management

Id: It2Lo6gViVY

Length: 6min 39sec (399 seconds)

Published: Sun Oct 10 2021