The first way is to dtermine which securities in your portfolio are the most volatile and then to reduce exposure to them as a percentage of your overall asset allocation.

Over-concentration occurs when you own too much of a particular securitiy or asset class.  Your portfolio may be comprised of 85% stocks or stock funds - this is way too risky for all investors.  In lesson 9, I show you how to structure a more conservative exposure to stocks via the WealthMaxBuilder portfolio.

This is because inexperienced model implementers are not faithful or disciplined. They don't take each and every signal, as they should.  This usually occurs after a model has gone through a "funk" period (i.e. a series of losing trades), which makes most people second-guess the model.  Before you know it, you're no longer implementing the timing model faithfully.   

Leverage is really the use of borrowed money to increase position size.  A mortgage for a home is also a form of leverage.  In all cases, leverage magnifies both the upside (profits) and the downside (losses).  In the case of futures, options and some leveraged ETFs and closed-end funds, the amount of magnification can be severe.  The end result is incredibly large swings in equity (i.e. volatility), which most investors and even traders can't handle.

Two main risks associated with bond investing are interest rate risk and credit risk.  Changes in the valuation of bond prices (and in turn bond funds) are inversely related to changes in yields or interst rates.  Credit risk has to deal with the ability of a debtor (i.e the bond issuer) to repay the interest and principal of the loan.

The best way to reduce interest rate and credit risk is to diversify acros a portfolio of hundreds of bond issues that are of investment grade quality.  And the easiest way to do this is to buy a low-cost, but well-managed investment grade bond fund (ETF or mutual fund).

Core-Satellite investing offers investors greater control of volatile assets (particularly stocks) during bear markets.  The ability to reduce allocation to stocks during bear markets raises the reward-to-risk of an overall portfolio - so long as the market timing model employed is competitive and the investor is following the model in a disciplined manner.