While hedge funds are aware of how leverage and low liquidity can pull them into deep markets, advisers need to keep in mind how this risk dynamic can play out within households.
The risk going forward is a lot higher than it has been in the recent past.
So far this year, the 60/40 portfolio has posted its worst performance in over 60 years, as both stocks and bonds sold off.
There's something a lot worse than being down 35%, and that's being down that much and then going nowhere for a decade or more.
Instead of engaging in a debate over which 30-year-old approach to risk management is better, advisers can jump to the best of current institutional risk management approaches, adapted to the unique challenges presented by working with individual investors.
