Note: This article was provided courtesy of Iris.xyz.

By Marie Dzanis

As professional money managers our opinion is that: if you haven’t already done so, it’s important to develop or review and fine tune your portfolio’s risk management plan.

History tells us the relative calm of the last few years is not very likely to remain. Better to be prepared for some stormy weather. ETFs can play a key role in any portfolio defense strategy.

The most basic component of risk management has always been diversification. ETFs are a low-cost way to achieve it in any portfolio. In addition to funds that are indexed against total markets or industry categories, ETFs also offer a wide range of asset classes, from commodities (and futures) to precious metals, REITs and more.

As most properly diversified portfolios include investments in foreign stocks and bonds, exchange rates can present formidable risk. There are several ways to effectively hedge against currency risk, but their complexity often inhibits the average investor from using them properly. Currency ETFs present much simpler, more flexible and more liquid tools in an effort to hedge against the exchange rate risk of assets held in depreciating currencies. An investor should keep in mind, however, that the values of foreign investments may be affected by changes in the currency rates or exchange control regulations.

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