Do it yourself

Not putting all eggs in one basket is perhaps one of the oldest risk management techniques. In the financial investment parlance, this is commonly called “diversification of portfolio”. Over the years this technique has worked well for investors in managing risk. In earlier times, diversification was a rather simple exercise. This usually involved allocating money to asset categories (equity, debt, commodity, real estate, etc.) that carried divergent risk profiles. During low inflation, easy money periods equities and real estate outperformed the debt; while in high inflation tighter money periods, bonds and commodities did better. However, as the markets became more globalized, financialized, and dematerialized, the performance of various asset classes started to become more correlated. With more and more assets offering a similar risk profile diversification of portfolios started becoming a complex and complicated exercise. In the past decade, we have seen sovereign bonds carry...