The uncertainty that has basically plagued investors since the financial crisis 14 years ago has once again increased significantly in recent weeks and months.

While investors were initially comfortable with the fact that inflation was temporarily high in the wake of the corona crisis, the latest data have called this into question, as has the Ukraine war, the consequences of which are only just beginning to be felt in this regard.

The inflation rate in Germany climbed to more than 7 percent in March, according to the Federal Statistical Office, and some experts do not even want to rule out double-digit inflation rates in this country.

Now many investors are wondering how they can go about making their portfolio safer.

Martin Hock

Editor in Business.

  • Follow I follow

If you want to attempt this, the first step is to analyze the current situation: What do I have in the depot and what are the associated risks?

The answer to the first question seems simple at first.

Most would answer: Apple, Microsoft, BASF, etc. But these details blur the view.

It is similar to answering the question about a forest by listing the individual trees.

It's not pointless, but misses the point.

When it comes to the risk of a portfolio, it's not just about the individual values.

The top priority is diversification, i.e. investing in such a way that not all positions suffer equally if the worst comes to the worst.

However, diversification does not consist in having the same risk several times, i.e. about three ETFs on the S&P 500 index.

It's always about connections.

Professionals like to work with statistical correlations, it is easier to use them to organize and add up risks.

It is about an overview of which assets, countries and sectors you have invested in.

Recognize unwanted concentration

What sounds simple is not that easy.

Especially if you have opted for investment funds or ETFs: Overlaps are quite common there.

For example, if you own a global technology fund and a US fund, you might be surprised at just how concentrated the portfolio actually is.

Two factors are responsible for this.

For one thing, the larger a mutual fund is, it needs to invest heavily in large-cap stocks.

The lamented index proximity of active fund managers is sometimes no less than a compulsion.

On the other hand, the price development on the stock exchanges is uneven.

Investors now tend to let profits run.

That's not bad in and of itself, but it does sometimes result in portfolios becoming more and more dependent on individual positions.

Over the past decade, much of the stock gains have come from America's big tech stocks, which are likely to be over-represented in many portfolios.

In addition: Listing each individual value is usually hardly possible with classic investment funds and at least extremely laborious with ETF.

But it's not absolutely necessary either.

Because the further you work down the list, the less influence a position has on the overall portfolio.

Ultimately, the largest positions are sufficient to get an impression, provided you compare them with the fund information available on the Internet - together with industry and country profiles - and outline them for your own portfolio.

It is then far more difficult to assess the risk.

You have to distinguish between a subjective and an objective component.

The objective is to ask how big are the risks?

For example: How likely is it that Russia will invade Poland in six weeks?

Or how high will inflation be in the long run?

The subjective component is the ability to live with risk.

If one really expects a Third World War, investing doesn't make much sense, Ufuk Boydak, CEO of the investment company Loys, recently summed it up to investors.

And for some, a 20 percent probability of a certain event occurring is not much, for others it is a lot.

It is difficult even for experts to objectively quantify a risk such as inflation or the risk of war.

It may therefore suffice to ask oneself questions about the business prospects of a company.

For example, does a company have pricing power?

With a view to interest rate developments, higher risks are slumbering with growth stocks because they are becoming more expensive.