Prepared For Anything

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“The only thing we can be certain of in this life is that we can be certain of nothing.” – Albert Einstein.

Incorporating a wide variety of portfolio risk mitigation techniques is essential to address unforeseeable macroeconomic challenges.

It is nearly impossible to properly identify and quantify risk. Common risk factors in the realm of investing and portfolio management may include:

1. Volatility of returns;

2. Portfolio concentration/diversification;

3. Asset correlations;

4. Valuations; and

5. Sensitivities to external factors (e.g., interest rates).

This year has been a stern reminder of the importance in accounting for a wide variety of risk measures in a portfolio.

But many equity investors choose to disregard defensive tactics for a variety of reasons.

Performance lag

Defensive measures will generally cause portfolio performance to lag during bull markets. As an example, if one has cash in a portfolio, the likelihood of underperformance rises as the market gains.