We diversify our portfolio’s to lower volatility. In the same way, we should diversify our thoughts to reduce risk.
The world is changing fast. Technology, geopolitics, the environment, and society are all shifting. How can we adapt and thrive? How can we prepare for the risks and opportunities?
We need to think differently, and we need to equally weight both sides of pretty much every story until we’re quite certain for ourselves what it actually means. We need to challenge the status quo and conventional wisdom, yet not for the sake of it, just to test it. We need to explore alternative perspectives and scenarios.
In 2007 a wheel over 5,000 was discovered. Some things can’t be improved on. That’s the world we live in too. It still goes around, even though it’s looking pretty shabby.
The world isn’t perfect, but it works.
If you can understand the risks of current geopolitical events, you can start to place probabilities of negative or positive events occurring. If the rate at which nations escalate war exceeds what’s been priced into oil, for example, that affects the decision the US Fed could make regarding interest rates. This may or may not increase the frequency of bank failures., which increases the risk of systemic failure in the financial system. Meanwhile, changes in interest rates affect the USD/NZD exchange rate, so the unhedged values of our NZ-based managed funds change as a result (among so many other things).
Is allocating between growth and income assets the best way to manage the risks in this present age?
Life is far more precious and beautiful than reducing a conflict in the Middle East to the value of our investments, but to assess risk properly, you need to remove morality from it to some extent.
If you want more in a sideways or falling market, you need to prepare before things go wrong.
To manage volatility, you diversify. To manage risk, you think differently about what’s happening in the world. To aid in this pursuit, check out the recent episode of The Everyday Investor with Dr. Reuben Steff.
Thank you to Dr. Reuben Steff for being my guest on this episode.
Check out some of his recent publications here
(2023) ‘The Strategic Case for New Zealand to Join AUKUS, The Diplomat, https://thediplomat.com/2023/04/the-strategic-case-for-new-zealand-to-join-aukus/
(2022) ‘Great Power Politics: The US-China Balance of Power in Transition’ in (ed.) Aiden Warren, Global Security in an Age of Crisis (Edinburgh University Press)
(2022) ‘The Fate of the Indo-Pacific: Lessons from Ukraine and US Diplomacy Towards Taiwan’, 9DASHLINE, https://www.9dashline.com/article/the-fate-of-the-indo-pacific-lessons-from-ukraine-and-us-diplomacy-towards-taiwan
(2020) Emerging Technologies and International Security: Machines, the State and War (Routledge)
Visit website at https://www.waikato.ac.nz/social-sciences/