Excess Returns, Ep. 16: Looking at Different Ways to Manage Risk

There are many ways to manage risk in a portfolio. Traditional methods like blending stocks with bonds will work for most investors, but more creative methods can also make sense in some cases. One thing all risk management techniques have in common though, is that they come with trade offs. In this episode we look at some popular risk management approaches, and some lesser known ones, and examine the pros and cons of each. In addition to a traditional blended stock and bond approach, we also discuss the Permanent Portfolio, and more advanced quantitative approaches like Trend Following, Protective Asset Allocation and Generalized Protective Momentum.

We discuss:

  • The different types of risks (inflationary and deflationary shocks) investors face.
  • Simple and more complex strategies that seek to manage risk and drawdowns and the potential trade-offs with each.
  • The importance for investors to take a long-term view with any approach that looks to mitigate risk.

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