5 key principles for building a resilient portfolio

Resilience is the ability of a system to withstand and recover from shocks and disturbances. In the context of portfolio management, a resilient portfolio is one that can maintain its value and meet your financial objectives over the long-term, even during periods of market volatility and economic uncertainty.

Why Resilience Matters

Financial crises and market downturns are inevitable. While nobody can predict when they will occur, you can take steps to protect your portfolios from their impact. A resilient portfolio can help you to weather these storms and emerge stronger on the other side.

What should you look for ?

There are five key principles that your investment professional should follow to build a resilient portfolio.

  1. Diversify – Diversification is the cornerstone of a resilient portfolio. By investing across a variety of asset classes, industries, and geographic regions, investors can reduce their overall risk exposure. If one asset class or sector underperforms, others may offset the losses. By avoiding concentration, we make the portfolio less risky. Being internationally diversified protect against a UK specific economic risk.
  2. Cash is not king – cash is often touted as the asset of choice to protect your wealth, but cash is not going to provide protection in the case of inflation shock.
  3. Manage risk actively – Risk management is an ongoing process. Investment professionals should regularly review your portfolios and make any required adjustments to ensure that they are aligned with your risk tolerance and investment objectives. This may include rebalancing the portfolio, hedging against specific risks, or reducing exposure to risky assets.
  4. Be prepared to adapt – Markets and economies are constantly evolving, so investors need to be prepared to adapt their portfolios accordingly. This may involve investing in new asset classes, sectors, or geographic regions. A diligent portfolio manager will look at emerging risks on the horizon and will adapt as the economic landscape evolves.
  5. Rebalance your portfolio regularly – Rebalancing your portfolio involves adjusting the asset allocation to maintain your desired risk profile. This is important because asset classes tend to have different risk-return profiles. Over time, the performance of different assets can cause the asset allocation to drift away from your target. Rebalancing helps to ensure that your portfolio remains aligned with your risk tolerance and investment objectives. Having a professional managing your money will always ensure that your portfolio is aligned to your risk profile.

What steps can you take to make your wealth resilient to shocks?

  • Have a clear investment plan – Before you start investing, it’s important to have a clear investment plan in place. A financial adviser will help you in setting those. This should include your investment objectives, risk tolerance, and time horizon. Once you have a plan in place, your financial adviser will help you in selecting the most appropriate investments for your situation.
  • Work with a financial adviser – A financial adviser can help you to develop and implement a resilient investment strategy. They can also provide guidance and coaching during market turbulence.
  • Stay invested –  it’s not market timing but time in the market. It’s particularly difficult to time the market successfully; investors tend to decrease their risk level too easily, but not increase the level of risk when appropriate.

Conclusion

Building a resilient portfolio takes time and effort, but it’s worth it in the long-run. By following the principles outlined above, investors can create a portfolio that is well-positioned to weather market storms and achieve their long-term financial goals.