Downside management toolkit

Helping you navigate through downward market swings.

This downside management toolkit keeps you informed of the latest market events, shares how we have been managing downside risk in our portfolios, and equips you with important truths to hold on to when markets bounce through turbulent times.

What's happening in markets

Momentum vs Asymmetry: Why downside management strategies are even more important now

Developed economies are in the “sweet spot” of moderately above-trend growth, continuing low inflation and easy monetary policy. However, we believe U.S. equity markets are extremely expensive relative to historical levels which makes the market vulnerable to any unwelcome news.

At current valuations, our analysis suggests the upside potential is limited, and the drawdown potential could be significant.

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How Russell Investments manages downside risk

At Russell Investments, we help investors manage downside risk in 3 ways: by diversifying sources of returns, using a robust dynamic asset allocation process to guide tactical positioning, and seeking effective implementation capabilities. We have been anticipating a low-return, high-volatility environment for the last 2-3 years. Accordingly, we have been dynamically adjusting our portfolio positioning to manage downside risk.

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The search for returns: the low-return imperative

We believe the search for returns is not going to get any easier against a backdrop of high U.S. equity prices, narrow credit spreads and low bond yields. When expected future market returns are likely to be lower than the required rate of return, we believe an investor cannot afford to ignore any investment strategy that may offer incremental return, take on risks they do not expect to get paid for or disregard implementation efficiency.

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Why downside protection may matter more than upside growth

The global macroeconomics and geopolitical outlook remains uncertain, suggesting that an environment of low rate, low growth, and high valuations may linger. Against this backdrop, preserving capital may be more important than seeking the growth of capital, because, in the investing world, losing less means requiring less to bounce back. 

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How we position our portfolios to help against downside risk

Complacency has no place in portfolio management. Once a portfolio or fund is built, it needs to be dynamically managed to not only take advantage of potential upside opportunities, but avoid as much downside as possible. At Russell Investments, our global portfolio managers direct multi-asset portfolios in real-time, all the time. 

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Multi-asset investing: the importance of seeking to manage the downside

Big losses are hard to recover from. That’s why a multi-asset approach that also emphasizes managing downside risk – the range of techniques designed to reduce the probability and magnitude of losses in a portfolio – is so valuable.  

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The search for returns in a low-return environment

We all know that successful investing is hard, but does it seem to be getting harder? For many investors the answer is “yes” for two primary reasons. The first is because many investors need fairly high nominal returns to achieve the investment outcomes they seek—and the second because market returns have lagged long-term averages over the last decade.  

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Downside management education resources

The impact of staying invested during market turmoil

Staying the course during market volatility is often difficult for many investors. Some choose to move to cash investments, while others try to time the market. Unfortunately, these investors are often buying high and selling low—and miss the rallies that follow the challenging periods.

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Atypical market conditions (such as today’s) shine a spotlight on risk measurement

People who really understand investment risk understand that numbers are only part of the story. And when market conditions are atypical – as they are today – it’s important to be extra careful in interpreting risk reports.

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Using risk tolerance to make clear decisions

One of the factors to consider when constructing an investment portfolio is how you balance the potential for risk with reward. It’s just as important to be aware of how your portfolio is constructed to not lose money as it is to be aware of how it makes money.

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Where did the stock market volatility go?

The first six months of 2017 saw remarkable tranquility in the stock market: annualized volatility of 7.5%1 being well below half of the market’s long-term average.

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market timing

Market timing amid volatility - tricky as ever

Correctly timing when to get out of – and back into – the market is tricky. Get out right after a ‘worst’ day, and one might not get back in soon enough to catch a ‘best’ day. Such mistiming can have a significant impact on potential portfolio returns.

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How fragile are today’s financial markets?

The U.S. stock market continues to hit new highs. Interest rates remain remarkably low compared to historical norms. It’s almost 8 years since the last U.S. economic recession. But nothing lasts forever.

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