Risk Management Separates Good Funds from Bad
Risk is difficult to measure and to manage. ETFs and indexes exist that provide performance averages. Mutual funds suffer from overhead and management costs, loads and redemption fees.
When investors are paying fund managers to reduce risk, minimize volatility and maximize returns, and they realize an industry average, index (which has no management), or T-Bill has bettered their fund, they should be upset. They have experienced an opportunity loss while taking on excessive risk, and while paying people to manage that risk.
We could use a backward looking lense to hopefully get a projection of what future performance or risk-adjusted returns might be. But, people cannot make informed decisions because they cannot truly know past risk, present risk, and more importantly future risk.
As the economy changes and as individual assets within a portfolio change, daily, one must have a means of contemplating different asset allocations based on reality and make necessary adjustments to maximize returns, while also managing risk.
Risk is hard to measure and manage. Different fund managers, each with various skills, talents and experience, will approach risk in various ways. Thus, some funds are inherently better than others, because of the human elements involved in managing money.
These managers are assisted by various technologies and algorithms in making (hopefully) informed investment decisions and proper asset allocations. It is important to understand what those methods are, and how it will affect your money.
Ideally, risk is isolated from asset allocation decisions. Let experience and skill handle the risk reduction processes but then once high quality candidates are weeded out, apply quantitiative true diversification to assign optimal asset allocations.
Choose your funds and your fund managers wisely, because your money is worth protecting.
When investors are paying fund managers to reduce risk, minimize volatility and maximize returns, and they realize an industry average, index (which has no management), or T-Bill has bettered their fund, they should be upset. They have experienced an opportunity loss while taking on excessive risk, and while paying people to manage that risk.
We could use a backward looking lense to hopefully get a projection of what future performance or risk-adjusted returns might be. But, people cannot make informed decisions because they cannot truly know past risk, present risk, and more importantly future risk.
As the economy changes and as individual assets within a portfolio change, daily, one must have a means of contemplating different asset allocations based on reality and make necessary adjustments to maximize returns, while also managing risk.
Risk is hard to measure and manage. Different fund managers, each with various skills, talents and experience, will approach risk in various ways. Thus, some funds are inherently better than others, because of the human elements involved in managing money.
These managers are assisted by various technologies and algorithms in making (hopefully) informed investment decisions and proper asset allocations. It is important to understand what those methods are, and how it will affect your money.
Ideally, risk is isolated from asset allocation decisions. Let experience and skill handle the risk reduction processes but then once high quality candidates are weeded out, apply quantitiative true diversification to assign optimal asset allocations.
Choose your funds and your fund managers wisely, because your money is worth protecting.
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