Know the risks: 100% equity portfolios

A really useful thing to know is that in professional retail investment management, at the most basic level risk is calculated in accordance to how much equity you have in your portfolio.

It doesn't matter if it's FTSE 100 or FTSE AIM, a Dow Jones stock, or a Mumbai Sensex stock, if it's an equity it's considered a risk.

If your investment time horizon is long (10 years+), then risk is fine as it can be mitigated with the many years you'll remain invested (as long as you can stomach the volatility in your portfolio and it won't lead you to rash decisions).

However If your time horizon is short/medium, then you have to mitigate the risk with something else.

The only way to do this really is with defensive assets (bonds/cash/some alternatives). Although these assets aren't quite as thrilling, they are needed in order to invest sensibly in accordance to your time horizon.

As a retail investor, the best way to do this is through funds, either actively managed or passive (ETFs).

Given valuations in the bond market are sky high at the moment, I would suggest that active management is worth its fees in its scope to find pockets of value.

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