Given the uncertainty in the markets, scenario analysis is a useful tool to evaluate the range of outcomes.
The pandemic of 2020 has dramatically shifted the starting point and path of the economy. More than ever, investors face a wider array of economic outcomes to prepare for. Along with bouts of volatility and normal rotations of performance, we need to prepare for regime shifts that alter some fundamental relationships in the markets.
Given the uncertainty in the markets, scenario analysis is another tool to evaluate the range of outcomes across specific economic and capital market paths. This analysis allows us to explore the downsides as well as the upsides in the different asset classes and allow investors to understand the driving forces. Complementing this with standard tools and modern risk control analytics should help prepare investors to build better, more resilient portfolios.