I've been thinking recently what can I do to reduce risk on my long-term buy-and-hold portfolio. When I say "risk", I'm talking about rare, unexpected but highly destructive events (think Taleb's Black Swans) - wars, global crises, political upheavals &c. &c.

My portfolio is diversfied on the following layers:

  • Type: equities, bonds, REITs, cash, treasury bills and metallic gold
  • Risk / return: S&P 500, developed markets, emerging markets, small-caps, gov't bonds, bank deposits
  • Geography: USA, Europe, Asia
  • Physical location of assets: Two countries in Europe and Russia (will probably open a new account somewhere else) - see also this question: Where are my US/UK equities stored?

  • Banks and brokers: two separate brokers; cash in a large int'l bank; gov't treasury (will open a new brokerage account for foreign stocks and a local bank account for higher interest rate deposits)

As you can see, I'm quite well diversfied, but maybe I'm not doing enough or there's something that I might have missed. Tangible real estate? Land? Or something else that I haven't even thought about?

UPDATE I'm considering adding index options into my portfolio. The idea is to buy them cheap, deeply OTM (out-of-the-money) as a sort of insurance against huge market downfall.

  • Most of the steps that you have taken will do nothing to prevent tail risk losses. Diversification helps one to avoid sector concentration risk but it does not mitigate the overall losses in a large correction or bear market. It merely spreads the losses over many positions in the hope that some will not lose as much as the others - but most of them will lose. In 2008-2009, many quality Dividend Aristocrats lost 50% or more with financials losing even more. Commented May 23, 2018 at 14:19
  • Well @BobBaerker, that's why I'm asking this question - what else shall I do to mitigate those risks?.. And my portfolio is not only diversified across sectors, it has positions all over the world, not just in the US...
    – Alexander
    Commented May 24, 2018 at 7:51
  • Well @Alexander, how do you think that the steps that you have taken will protect you against "rare, unexpected but HIGHLY DESTRUCTIVE events (think Taleb's Black Swans) - wars, global crises, political upheavals" ? Commented May 24, 2018 at 12:18
  • You need to cash out, that's the only way. You can't put your money into financial market and hope to never have drawbacks...
    – YCN-
    Commented May 24, 2018 at 15:31
  • Hmmm.... discounting an an all-out nuclear war or ecological crisis (in that case I'd have to worry about food and shotgun shells, not portfolio... although I'd still have gold which could still have some value): imagine Trump making USA Union of Soviet Socialistic States of America, where everything is for a man, and my stock would be owned by The Man himself. I'd lose my US assets overnight, but there would still be Asia or Russia. There would be economic ripples but in the end that could benefit non-US economy (importers / investors fleeing to China).
    – Alexander
    Commented May 25, 2018 at 7:21


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