Risks diversification cannot remove
Risks diversification can reduce
Diversification reduces these. It does not remove them.
Volatility is a gauge, not the whole of it
Volatility measures how much a holding, an asset class or a portfolio fluctuates in value. It varies with the instrument, with the period observed and with the way holdings are combined. Tolerating fluctuation is not the same thing as being able to absorb a loss, particularly a loss that puts an objective out of reach or alters a client’s circumstances irreversibly.Risk belongs to the portfolio, not to the holding
No holding is judged in isolation. What matters is the overall level of risk in the portfolio. A small position in a higher-risk investment that has low or no correlation with the rest can lower risk across the whole portfolio, even where that portfolio was built for a low risk appetite.Where risk is controlled in practice
- At selection. The equity screen removes business models showing signs of obsolescence, companies excessively exposed to environmental, social and governance risk factors, and companies overexposed to a single region or product. See Private Asset Management.
- After the trade. Structured products are monitored across their life, and forex positions carry daily risk analysis.
- At the bank. No speculative positions on the balance sheet, and no lending other than against a client’s own portfolio.
Related
- Portfolio construction, the mechanics of diversification.
- Our investment principles, the philosophy this sits inside.
- Investment solutions, the monitoring described above in full.
General information only. Not investment advice, not a solicitation and not an offer. Eligibility, services and terms differ by jurisdiction and by client. Speak to your banker about your own circumstances.