The current year has been commented several times as a year in which political risks will play a role: Brexit, Trump, elections in France and Germany, amongst others. We usually think in other kind of risks when we speak about investments, but in this case it is possible that we have to consider the political factor.
Anyway, we want to obtain the best returns with the lower risk. How could you move your assets in 2017 with this scenario?
First of all, check yourself. No, we do not speak about your health, but about your financial needs and plans. Do your budget, organise a cash flow, analyse your expenditures and think about your financial goals.
Secondly, analyse quietly your portfolio. Is it correctly diversified? Have you recently checked the evolution and consider a rebalance? It is important to take into account that diversification is not a matter of number of securities or different kind of them (equities, fixed-income…). It has more to do with avoiding correlations and considering factors. What does factor here mean? Think about that you have different kind of securities from UK. If all your investments are connected with this country, you have the Brexit factor and this political issue will condition the returns. That needs a wide view over the reality.
Thirdly, in order to choose the best assets for your portfolio in uncertain times, remember to check some figures, as:
- Trading volume and liquidity: it is very relevant that the asset has a high trade rate and it is easy to sell, in order to avoid counterparty risks.
- Volatility: the higher it is, the higher is the risk that you have to deal with deep price changes.
- Past performance and bootstrapping: it is true that past returns do not guarantee future ones, but an analysis of the past trend combined with a forward testing with a bootstrapping tool can be helpful to select better securities for your portfolio.
- Correlation with its benchmark: this is quite important, even more if the market is risky.
Finally, the main rule for investors in uncertain times (as we are living now) is common sense. Invest only the money left, not the amount to pay your mortgage, think about how regular and safe are your incomes and be reasonable with your goals.