Market Risk Assessment | Diversified Investments

If you’ve been watching headlines and thinking, “I wonder how this affects my portfolio,” you’re not alone. A Market Risk Assessment is a practical way to measure how much market movement your plan can realistically handle, and what happens if volatility shows up at the wrong time. At Diversified Investment Strategies, we help individuals, families, and business owners get a clearer view of risk before it turns into regret.

Here’s the point: market risk isn’t just when “stocks go down.” It’s sequence-of-returns risk near retirement, concentrated positions from equity comp, overexposure to one sector, or a portfolio that looks diversified but behaves like one big trade.

It’s important to check that you have the right combination of investments and the guardrails in place to give you the best protection possible.

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Why a Market Risk Assessment Matters

Even “normal” markets swing. The Cboe Volatility Index (VIX), a common gauge of expected near-term volatility, has a long history of moving sharply during stressful periods, and its historical average is often cited around the high teens to ~20 range.

A Market Risk Assessment helps connect those market realities to your real life:

How much downside can you live with before you change course? (Be honest. Most people don’t know until they see it.)
How quickly might you need access to cash? For a business purchase, tax bill, or family need.
How exposed are you to interest rate moves? Especially if you rely on bonds for stability.
Where are the hidden concentrations? Employer stock, one “hot” ETF, one manager, one strategy.

This is also where the “risk management in wealth management” conversation gets real. It’s about asking the right questions and making informed decisions.

What We Review in a Market Risk Assessment

Think of this as a structured checkup using financial risk management tools that translate risk into numbers and scenarios.

Value at Risk Calculation and Drawdown Math

A value at risk calculation (VaR) is a way to estimate how much a portfolio could lose over a specific time period. Think of it as a risk boundary, not a prediction. This alone can feel a bit abstract, so we pair it with drawdown math, which measures the peak-to-trough decline a portfolio experiences during a downturn.
The combination of the two provides usable data for developing practical strategies and solutions.

Financial Stress Tests and “Bad Timing” Scenarios

Banks run stress tests for a reason. The Federal Reserve describes stress tests as forward-looking evaluations using hypothetical recession scenarios to see how capital holds up under pressure.

We borrow the spirit of that idea for personal planning: What if markets drop and rates rise? What if a down year hits right when withdrawals start?

Risk Controls You Can Actually Use

A Market Risk Assessment should lead to decisions, not a report that sits in a folder. Depending on your situation, we may discuss:

Rebalancing rules and guardrails
Cash and liquidity planning
Diversification across risk factors, not just ticker symbols
Hedging-style approaches where appropriate
How certain “defined outcome” strategies may fit

Risk Exposure by Account and Goal

We map risk to each purpose: retirement income, near-term spending, college funding, business reserves, legacy goals. One portfolio can hold multiple timelines, but it shouldn’t behave like one.

Our Approach as Your Financial Risk Manager

We don’t treat risk like a questionnaire score and call it a day. As your financial risk manager, our job is to help you understand tradeoffs, line up risk with your goals, and avoid accidental bets. Simple as that.

If you’re a business owner, we also look at how business cash flow, taxes, and owner compensation decisions can amplify market risk. It’s all connected.

Frequently Asked Questions

What’s included in a Market Risk Assessment?
A review of your portfolio risk, concentrations, liquidity needs, and scenario analysis, often including financial stress tests and using tools like value at risk calculations

Do buffered ETFs remove market risk?
They may limit certain losses over a defined period, but they typically come with caps, timing considerations, and other tradeoffs.

How often should I reevaluate my risk?
A few good times to do a new market risk assessment are when life changes, taxes change, your time horizon shifts, or your portfolio drifts. Many people also revisit after big market moves.

Can you do this if I already work with another advisor?
Yes. A Market Risk Assessment can be used as a second set of eyes on portfolio structure and risk exposure.

Ready to Talk Through Your Risk?

If you’re in Florham Park or the surrounding area and want a clearer view of what your portfolio is really doing, let’s talk. A Market Risk Assessment can help you move from “I think I’m fine” to “I know what I’m holding and why.”

Schedule an appointment today with Diversified Investment Strategies for a thorough Market Risk Assessment and walk through of your current portfolio, your goals, and the specific risks that matter most to you.

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