In an environment with low return expectations from most traditionally defined asset classes, sensitivity to potential drawdowns in a portfolio’s value becomes more critical than ever. While overallocation to equity is a common culprit, it is not the only source of downside risk; and value-at-risk (VaR) reduction at the total portfolio level must be targeted at phases throughout portfolio construction. Potential solutions for managing downside risk are discussed via analogy to a more familiar concept of managing personal health and wellness:

  1. Preventative medicine
  2. Minor surgery
  3. Catastrophic healthcare coverage

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