Remembering the key takeaway from post #1:
A portfolio strategy that looks a little less attractive on the way up but (comparatively) looks much better on the way down is easier for investors to swallow.
So how can such a portfolio created by the DIY investor?
The budget version is low volatility investing, which is an approach that focuses on stocks or sectors that have less price fluctuation than the broad market. In theory, risk and return should be positively correlated, meaning less risk equals less returns but more protection when the market drops.
In simple terms, adding 10%-20% of ‘low vol’ (ETFs, for example) and some fixed income to a one-ticket solution balanced portfolio gets you a perfectly fine version of the strategy. Individual investors can do this easily but if you want a more sophisticated approach, and the potential for enhanced returns, a professional portfolio manager can provide a defensive Options writing strategy. If ‘low vol’ is the IKEA version, defensive Options strategies are the Rolls Royce model.
Coming up next in post #3
In our next post will focus on a couple of these more advanced Options writing strategies that some professional money managers can implement, to deliver enhanced versions of this type of lower volatility style of portfolio.
Taming the Market – Part 3/3: Strategies used by pros to insulate their or their client’s portfolios
November 28, 2023
Taming the Market – Part 2/3: Strategies for a DIY investor to better insulate their portfolio
November 20, 2023