Stocks have been on a rollercoaster ride this year, driven by a combination of recession fears, inflationary pressures and a host of other macro risk markets. US indexes have recently bounced back from lows hit earlier this year, but Wall Street is still debating whether markets will bottom out. “While the third quarter started off with a bang for the equity and fixed-income markets, we think the risk remains high that both the S&P 500 Index and the Bloomberg Composite Bond Index The U.S. could fall for the full year,” Veronica Willis, investment strategy analyst at Wells Fargo Investment Institute, said in an August 15 note. Here’s what investors can do to reduce the risk for their portfolio, according to experts. According to Peter Garnry, Saxo Bank’s head of equity strategy, mixes a 5-stock portfolio with an ETF. He notes that a “typical” return investor typically has a portfolio of just 3-5 stocks, in an effort to minimize transaction costs. “We show that by combining a 50/50 portfolio of five stocks with an ETF that tracks the broader stock market, the risk is significantly reduced without impacting,” he said. long-term expected returns. Saxo Bank conducted a study in which they randomly selected five European stocks and examined the returns of these portfolios over the 12 years after January 2010. These 1,000 portfolios ended up with negative returns over this 12.5 year period, which is remarkable in itself, but the number of portfolios ending up with extremely high total returns is also surprisingly high. surprising,” writes Garnry. “In other words, a 5-stock portfolio is a lottery ticket with extremely high variance outcomes.” However, adding an ETF that tracks the full Stoxx 600 index Europe is in the mix, and investors have seen their risk reduced, the bank said. significant decline,” Garnry writes. He adds that the Sharpe Ratio improves by an average of 20% by adding an overall stock market component, which is a measure of a stock’s performance relative to volatility. degree its value and calculate its return above and beyond the risk-free, risk-adjusted rate of holding it. Garnry concludes: “Therefore, most retail investors can significantly improve their risk-adjusted return by adding an ETF that tracks the overall equity market without must sacrifice expected returns,” concluded Garnry. Diversify your 60/40 portfolio Analysts have recently beaten the traditional 60/40 portfolio, although some banks have defended this strategy. That portfolio – consisting of 60% stocks and 40% bonds – continues to lose about 16% in the first half of 2022, according to data from Wells Fargo. Historically, when stocks depreciate, bonds rise – but the two have fallen together this year. So there are some adjustments that can be made to this strategy to minimize the damage, Wells Fargo suggested. “As we’ve seen this year and in a few cases before that, sometimes stocks and bonds move together. That’s where allocations to other asset classes don’t move in tandem. with stocks or bonds can be helpful,” Wells’ Willis told Fargo. The bank added: “Including diversification factors, such as commodities and hedge fund strategies, can be a useful tool in mitigating downside risk as these assets are not always move in the same direction as stocks or bonds. According to Wells Fargo, to minimize risk and loss, investors might consider the following allocation: 55% stocks, 35% bonds, 5% commodities and 5% hedge funds. That combination reduces this year’s losses to 8.67%, compared with 10.62% for the 60% allocation for stocks and 40% for bonds, it added. Real Asset Review Goldman said in a recent report that real assets can be more important in an investment cycle when inflation is higher than the world. According to Goldman Sachs Research, the broad allocation of real estate, infrastructure, gold and commodity indexes by weight has resulted in the best risk-adjusted performance in times of high inflation. Goldman added: “Instead of a tech startup that may not make a profit until years from now, investors are backing companies that can already generate income and dividends.” .” Warehouses are a popular investment as e-commerce accelerates. Demand for storage battery companies has increased amid an increasingly renewable energy infrastructure, the bank said. focus on renewable energy infrastructure”.