Wealth managers talk risk mitigation in an increasingly messy market

How are wealth managers approaching risk mitigation today? And has it changed over the past 12 months because of wars, tariffs, AI and all the other messy matters roiling the economy and stock market?

Sam Diarbakerly, founder and private wealth advisor at Generation Capital Advisors, for one, says his approach to risk mitigation has not changed, and that consistency is the point. In his view, roughly 95% of long-term returns are dictated by asset allocation and only about 5% by manager selection, so risk management is primarily an asset allocation exercise, not a market-timing or security-selection exercise. The philosophy, according to Diarbakerly, does not move with the headlines.

“What we focus on is ensuring every client portfolio is built to navigate the two risks that actually matter: purchasing power risk, meaning the erosion of wealth through inflation, and drawdown risk, meaning the behavioral mistake of selling at the bottom. If we can design a portfolio that solves for both, with an appropriate cash reserve so clients never have to liquidate growth assets into a declining market, clients are positioned to succeed across cycles,” Diarbakerly said.

The building blocks to Diarbakerly’s risk mitigation strategy are intentionally simple and transparent. He uses low-cost ETFs as the core of client portfolios because they keep expenses down, deliver tax efficiency, and give clients a clear view into what they own and why. Staying disciplined on cost and structure is one of the highest-confidence contributors to long-term outcomes, according to Diarbakerly.

Beyond the investment vehicles themselves, he believes the most valuable tool during periods of volatility is planning.

“When markets sell off, we lean into strategies that actually benefit from lower asset values, including Roth conversions executed when account values are depressed, gifting appreciated or temporarily depressed assets into trusts, and reviewing estate and tax structures that become more attractive in a down market,” Diarbakerly said.

Pete Alliegro, chief investment officer of Sagient, meanwhile, says diversification remains central in risk mitigation. He adds that blending passive strategies for broad, low-cost exposure with more active, factor-based strategies provides cost-effective protective strategies for equity investors.

“Passive investing with a growth tilt worked up until last year. Incorporating other exposures like value, quality, non-US, and small-mid, through active managers or ETFs has become necessary in equity portfolios,” Alliegro said.

Elsewhere, Rafia Hasan, chief investment officer at Perigon Wealth Management, says she too has not changed her approach to risk, but the environment demanding our attention has. In her view, risk mitigation, at its core, is about making sure a portfolio can withstand conditions that feel unlikely right up until they aren't.

“A few years ago, the range of scenarios we were stress-testing was narrower. Today it's wider, and the tail events feel less like theoretical exercises. Despite this it’s important to underscore that the equity market has been remarkably resilient and investors who drastically pulled back on risk assets have missed out on returns, Hasan said. 

Hasan says broad diversification and rebalancing portfolios back to target risk allocations remain her most durable tools. Not because they're exciting, but because they work.

“When correlations converge in a crisis, which they often do, you want exposure across asset classes and geographies that don't all move in the same direction at the same time,” Hasan said.

From an asset allocation standpoint, she has added several alternative investment strategies to her platform, including options strategies, long-short strategies and structured products that can help reduce equity market exposure back in line with client risk targets without incurring a huge tax bill.

“Some of these strategies are higher cost, so we are judicious in thinking through the appropriate client situations to use them,” Hasan said.

Finally, as to how much actual risk is in the market today relative to a few years ago, Hasan says the policy environment is certainly less predictable than it was a few years ago and the geopolitical backdrop is more fragmented. That being said, she believes disruption can often create opportunities for investment.

“Volatility is elevated and that's real. But the underlying economy has shown more resilience than many expected, and diversified portfolios, if they were built correctly, are doing their job,” Hasan said.