traditional diversification between stocks and bond.
We are so used to this way of thinking that even asset management experts like us tend to associate risk exclusively with the percentage of equities in a portfolio. This is a mistake. The zero or negative interest rate policy that central banks are pursuing has transformed the very concept of risk and what is risk free. Last year, Austria issued a 100-year bond at just over 2%. Say interest rates rise by only 1% - a pittance in any long-term chart - the loss on the investment would be nearly 50%! No one has 100-year bonds in their portfolio, but we all have long-term investments. It’s completely misleading to claim that a portfolio is low risk because it is only 20% or 30% invested in equities. Try to get a real understanding of your portfolio’s overall risk.