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How this asset helps reduce risk, eliminate volatility and cut losses

by , 20 March 2020
How this asset helps reduce risk, eliminate volatility and cut losses
When market uncertainty is prevalent (like it is right now in South Africa), investing in this asset helps fund managers combat the triple portfolio threat of risk, volatility and losses.

And what's more important than making money?

Not losing it!

So how exactly does it do this?

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#1: This asset helps you avoid the two biggest risks investors face
Have you ever heard of market risk and valuation risk?
If not, it’s important to know them.
Market risk is the risk most investors focus on. It’s the risk that your investments will decrease in value when mayhem hits the market.
While, valuation risk is the risk of paying more for what an investment is really worth.
Generally, investors who buy stocks are most exposed to valuation risk as they often make the mistake of overpaying for a stock.
Here’s how this asset protects your portfolio from market and valuation risk…
#2: This asset serves as an anchor within a portfolio to limit losses during periods of volatility
This assets combats losses and volatility simultaneously.
Let me explain using an example…
A 20% market decline in a fully invested portfolio results in a loss of 20%.
By reducing market exposure to 80% with a 20% allocation in this asset, the same market loss results in a portfolio loss of 16%.
A 60% market exposure will reduce this loss to 12%.
And so on.
You can see that this asset can keep your losses as low as possible. It just depends how much you allocate to your portfolio.
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The asset I’m talking about is…
Cash investments can include money-market funds, Bank deposit fund, fixed-income funds, RSA Savings Bonds or just cold hard cash.
Yes, cash is boring. And investing in it certainly won’t make you rich.
But investing in cash is vital to protect your portfolio through tough times. So it’s always god to have at least 10% of your portfolio allocated to cash investments.
See you next week,
Josh Benton,
managing Editor, Real Wealth

How this asset helps reduce risk, eliminate volatility and cut losses
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