![]() It may include a diversified mix of assets across geographic markets and investments in business of different sizes.įor added diversification and to minimize the impact of volatility on returns, include an allocation to uncorrelated alternative investments, such as private debt, private equity, real estate, infrastructure and hedge funds. In this instance, your portfolio is generally divided equally between fixed-income securities and equities based on your investment objectives, time horizon, risk tolerance and investment knowledge. The first is to take a balanced approach to portfolio design and construction. However, you can minimize some of the bumps in the road by including a few basic protection strategies in your portfolio. You can never eliminate volatility in the marketplace. Three ways to minimize the impact of market bumps Fortunately, there are effective strategies to manage this risk. The cumulative impact of these drawdown characteristics can certainly challenge portfolio returns and affect an investor’s long-term retirement plans. For example, there have been several major crashes in the United States along with many market corrections in between, including: the Panic of 1907, the Wall Street crash of 1929, Black Monday on Oct. The third is frequency, or how often a portfolio declines in value. 9, 2007, at 14,164 points and dropped to 6,469 points by March 6, 2009, representing a duration of 17 months. Is the decline one day, two months or three quarters? Using the same example above, the DJIA peaked on Oct. The second is duration, or how long the decline occurs and how long until it recovers. ![]()
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