Skip to main content

NEW YORK (TheStreet) -- On Friday, T. Rowe Price sent an email that offered ways "to cope with market volatility." They relay these missives occasionally to calm frayed nerves they think exist among retail investors.

On the same day, I received Charles Schwab's monthly investing magazine. On page 17, it offered "Popular Strategies for Trading Currencies."

Talk about an exercise in contrast.

I cannot comprehend why anyone would suggest currency trading as a way to diversify or hedge a portfolio, particularly in a publication from a solid firm like Schwab. You might as well hedge via sports betting. For most investors, currency trading does not end well.

Don't do it. Definitely don't do it as a strategy to complement or supplement your long-term approach. And, most of all, don't respond to this inane fear of volatility by "diversifying" or "hedging" with something as risky as currency trading.

Do you really need to worry about "volatility" any more today than you did in previous years? Should you look for extreme ways to "diversify" or "hedge"? Or, should you simply stick to the basics because, let's face it, most of us will never achieve true diversification and be fully hedged to begin with.

Even if it's somehow possible, I'm not sure you need to waste time finding ways to "cope with volatility." And you certainly do not need to combat volatility, underperformance or whatever by trading currencies.

Instead, buy dividend-paying stocks and write covered calls.

That's both a short- and long-term strategy that hedges and takes the sting out of not-so-stellar stock picks. Because, after all, whether in a bullish, bearish, volatile or calm, cool and collected market, it usually boils down to picking good stocks, unless you put your fate in the hands of index funds.

Late 2008 to early 2009 could go down as one of the most volatile periods in recent memory. We experienced some wild gyrations during the summer and early fall of 2011. You do remember the many triple-digit drops in the Dow followed by one-day rallies often led by

Apple

(AAPL) - Get Apple Inc. Report

and

Amazon.com

(AMZN) - Get Amazon.com, Inc. Report

?

TheStreet Recommends

If you rode out the last five years with AAPL and AMZN, you're in excellent shape today. Not so much if you opted to buy and hold

Cisco Systems

(CSCO) - Get Cisco Systems, Inc. Report

,

Hewlett-Packard

(HPQ) - Get HP Inc. Report

or

Intel

(INTC) - Get Intel Corporation Report

.

Image placeholder title

AAPL

data by

YCharts

While AAPL and AMZN outperformed the Nasdaq-100, the tech-heavy index did relatively well. At least compared to the Dow and S&P 500, which produced INTC-like returns during the most recent five-year period.

If you erred with a stock like INTC, you might have actually come out ahead if properly played. I recently unloaded a position in INTC for slightly below break-even. However, when you count "free money" from dividend reinvestment and covered-call writing, I came out ahead on the overall trade.

I categorize what I did with INTC as a solid job of hedging. While you cannot quite call the stock pick a dog, like you can with CSCO and HPQ, it ended up a stagnant and uninspiring choice.

Stagnation can happen regardless of your past performance, intellect or even the quality of the company. That's why if you do nothing else, seek dividend payers and use the relatively drama-free tool of writing weekly or monthly covered calls to hedge.

It's a somewhat boring approach. But, investing for growth and income should not be an overly exciting endeavor. You're better off countering fears about volatility, diversification and hedging with something simple rather than an advanced strategy that can take you down in short order.

Follow @RoccoPendola

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Rocco Pendola is a private investor with nearly 20 years experience in various forms of media, ranging from radio to print. His work has appeared in academic journals as well as dozens of online and offline publications. He uses his broad experience to help inform his coverage of the stock market, primarily in the technology, Internet and new media spaces. He has taken a long-term approach to investing, focusing on dividend-paying stocks, since he opened his first account as a teenager. Pendola, 37, is based in Santa Monica, Calif., where he lives with his wife and child.