Investment Management: You Can’t Avoid Risk, But You Can Manage It

Inflation reduces the purchasing power of your money over time. If your investments do not at least match the rate of inflation, their real value declines - meaning your savings will buy you less in the future.

For instance, imagine you invest USD 1 million at age 30 for retirement. With an average annual inflation rate of 3%, its purchasing power at age 65 would fall to roughly USD 350,000 in today’s terms. The lesson? Even conservative investors need growth assets in their portfolios to keep pace with rising costs of living.

While inflation is not currently a major concern in most of Asia (in fact, deflation is currently more of a threat in some countries), it is rising in the US. For most expats, ensuring your portfolio stays ahead of inflation remains critical to your long-term financial wellbeing.

Market risk refers to the possibility that your investments fall in value due to factors outside your control – from economic downturns and geopolitical tensions to shifts in investor sentiment.

Recent years have shown just how unpredictable markets can be: the COVID-19 pandemic, global supply chain disruptions, and rising interest rates have all affected asset prices. 2025 has been a particularly volatile year as markets have reacted to the uncertainty caused by Trump’s unpredictable trade policies.

While short-term fluctuations can test even the most disciplined investors, history tells us that equity markets are cyclical and recover over time, which is why we recommend avoiding knee-jerk reactions to market volatility.

Diversification across asset classes, regions, and sectors remains the most effective way to manage market risk. This is something to discuss in regular reviews with your financial adviser.

Default risk arises when a company or government fails to meet its financial obligations. Bondholders may face losses if the issuer defaults on payments. Although defaults on high-quality bonds are relatively rare, investors in equities are currently facing increased default risk.

At the end of 2024, Moody’s reported that the average risk of default for US public companies had reached a post-global financial crisis high of 9.2% predicting an elevated risk through 2025. This has, so far, turned out to be an accurate analysis. A July report from S&P Global Market Intelligence showed that US corporate bankruptcy filings reached their highest level since 2010.            

Default risk is another reason why a well-diversified portfolio should include a mix of assets, industries, and credit qualities – rather than relying too heavily on a single company or issuer.

Longevity risk is the possibility that you live longer than your money lasts. As life expectancy rises across the globe, retirement savings that once seemed adequate can fall short, especially if inflation or healthcare costs rise faster than expected.

Managing longevity risk requires more than just saving diligently – it calls for a structured approach to understanding how long your money is likely to last. This is where cashflow forecasting becomes invaluable.

A financial planner can use detailed cashflow projections to map out your income sources, investment returns, and expected expenses year by year throughout retirement. This forward-looking analysis helps you identify potential shortfalls early, test different scenarios (such as rising costs or lower investment returns), and adjust your investment strategy accordingly.

By combining realistic assumptions with ongoing reviews, cashflow forecasting allows you to make informed decisions about spending, saving, and investment drawdowns. In turn, it gives you greater confidence that your retirement plan will support the lifestyle you want for as long as you live.

Mortality risk is the opposite of longevity risk. It refers to the financial consequences of dying earlier than anticipated, particularly for those with dependants or long-term investment products such as annuities.

For example, if you purchase an annuity and pass away shortly afterwards, you may receive less than you paid in, unless the product includes a guaranteed payment period or death benefit. Similarly, if you pass away before your financial goals are achieved, your family could face income loss or estate complications.

Life insurance plays a crucial role in managing mortality risk. The right level of cover ensures your loved ones are protected, your debts are cleared, and your long-term plans - such as children’s education or family wealth transfer - can continue even if you are no longer around.

Understanding the different types of risk is the first step. The next step is ensuring your investment strategy reflects your goals, time horizon, and comfort with volatility. Regular reviews, diversification, and professional guidance can make a significant difference.

A qualified financial adviser can help you build a portfolio that’s designed not just to withstand market uncertainty but to thrive in it - keeping your financial future on track, whatever happens next.

If you haven’t reviewed your investment or retirement plan recently, now may be the right time to do so. Arrange a chat with one of our experienced financial advisers to discuss how your current strategy measures up against today’s risks and whether it’s still aligned with your goals. A clear, forward-looking plan can give you the confidence to stay invested and focused on what truly matters - achieving lasting financial security.