Whether you’re buying stocks directly or invested in mutual funds or ETFs, there is one important lesson to learn: You cannot time the market. If you wait for prices to fall you’ll likely sit on the fence for a long time. That’s why in this piece we’ll talk about the benefits of downside protection and then staying invested through the ups and downs.
The most common pattern observed for a DIY investor to select a mutual fund/ stock/ etf is to look at the past performance. Fund houses which are at the top of the returns chart during a time period garner higher inflows as compared to other funds. Most investors fail to understand the importance of downside protection.
Downside protection essentially means employing strategies that aim to reduce the frequency and/or magnitude of capital losses, resulting from significant asset market declines. Downside protection strategies involve adjusting a portfolio’s market exposure to limit the impact of potential losses from market downturns.
1. Diversification – Diversification is one of the simplest ways to reduce exposure to fluctuations in investor portfolios. By diversifying into alternative assets and strategies that benefit from less correlated return sources such as inflation, illiquidity, entrepreneurial risk and manager insights, the portfolio is less sensitive to traditional return drivers such as the equity market premium and interest rate movements.
For example, Tenjin Ai strategies have Investments’ in multiple assets and have diversified defensive asset exposures to ensure there is optimum diversification.
3. Targeting specific market exposure, e.g. by exploiting behavioural biases using smart beta strategies.
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© Copyright 2022 Tenjin AI Financial Technologies LLC. All rights reserved.
© Copyright 2022 Tenjin AI Financial Technologies LLC. All rights reserved.
© Copyright 2022 Tenjin AI Financial Technologies LLC. All rights reserved.