If trade were a game in a amusement park, the recent movement in the ingenious index could be classified as a roller diving mountain. These price movements hold their high -risk investment portfolio. In this article, we discuss why making active decisions about the portfolio is becoming more crucial than before.
Volatility risk
Suppose your investment has accumulated 50% yield in the last three years, and then the 33% market tanks. You will lose all your profits without eating. If you are more years old to achieve the objective for which investments were assigned, you can recover some of the losses. But can you accumulate enough wealth in time to achieve your goal?
When the main yield of its investments is capital appreciation, it must take into account how volatility (price fluctuations) can damage the value of its investments and, therefore, its life objectives. A purchase and retention strategy may not work in such volatile markets, even if it has a long time horizon to achieve its objective. This argument is true if it invests in active or liabilities (ETF and index funds). Because?
The portfolio manager of an active fund can decide when to obtain profits in values held in the portfolio. But while remaining invested in the background, profits in heroes units are not abundant.
As for passive funds, the risk is higher since the fund administrator will not have profits even if the market is too expensive. Therefore, when you invest in active or liabilities, you must continually administer your investments in the fund.
Conclusion
It can moderate the impact of volatility by having a default rule to obtain profits in its capital investments. Suppose you want a minimum annual yield or 13%. If the yields are greater than 13% in any year (say 15%), you must sell units to capture excess yields (two percentage points). You must also be willing to buy more units when the market is blocked due to global events (at macro level). This is possible if you have cash in your portfolio, especially killing volatile markets. But take into account the reduction of its capital allocation if it is within 15-10 years from its retirement.
For all other objectives, it is enough to reduce the allocation when it is within five years since the end of the temporal horizon for that goal.
(The author offers training programs for people to manage their personal investments)
Posted on April 28, 2025
