All weather investing: Protecting your portfolio from market downturns
market scenario is characterised by heightened volatility due to geopolitical tensions, US election cycles, and recessionary fears. To handle the market-wide fluctuations, the investors must strategically position themselves to generate optimal returns with a lesser risk. While expecting higher returns is important, it is crucial to consider the risks involved.
During periods of market corrections, many investors succumb to panic selling, ultimately crystallizing losses that could have been mitigated. Portfolio diversification can serve as an effective strategy to buffer against systemic risks and enhance risk-adjusted returns in these uncertain times.
What many fail to realize is that even during downturns, a portfolio can still perform well if its drawdown is smaller than the broader market’s drawdown. In today’s unpredictable financial environment, understanding and managing different types of risk is crucial to building a resilient, all-weather portfolio. In this article, we will explore certain ways how to construct an all-weather portfolio.
Risk in financial markets is generally categorized as systematic and unsystematic. Systematic risk affects the entire market and is influenced by factors such as interest rate changes, or global events like the 2008 financial crisis and the COVID-19 pandemic.
Unsystematic risk, however, is specific to individual companies or industries. For instance, a regulatory change affecting the telecom sector would impact only those companies but not others. While systematic risk
