Changing market conditions over the last five years have taught us a few things about managing risk. The most important lesson? Delivering downside protection constantly requires refining and adjustment.

Equity markets are never static. In recent years, equity investors have enjoyed handsome returns amid subdued volatility, yet market conditions have been far from simple. Interest rates have been stuck at historically low levels. The search for income has driven a flood of money into stocks with high dividend yields. Valuations have risen, particularly in the US. And political risk is a growing source of instability.

Always Think About Downside Protection

When markets are consistently rising, it’s easy to take risk management for granted. But in fact, we believe that the best time to think about risk is when volatility isn’t there so that your portfolio is properly prepared—waiting until turbulence strikes is often too late. In our experience, three broad lessons about risk management can help underpin a portfolio strategy for downside protection.