Diversification is ultimately about risk and reward. Often, however, the biggest risks are the ones investors don’t see coming.
This was certainly the case in the first quarter of this year. At the start of 2020, a global pandemic that would lead to economies being shut down all over the world was not something anybody anticipated.
This is exactly the kind of event that exposes shortcomings in portfolios. Many investors who thought that they were well-diversified going into the sell-off, may have discovered that they weren’t as well covered as they thought they would be.
‘Although you construct portfolios for a normal distribution and the normal run-of-the-mill conditions, when these dramatic left-tail events hit, that’s when your blind spots are really brought to the fore,’ said Claire Rentzke, CIO at Sukha & Associates.
In this short video, Rentzke and Adriaan Pask, CIO at PSG Wealth, share their thoughts on why, no matter how good your market view might be, you always have to consider that you could be wrong.
Click below to watch the video.