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Instead of relying on 50-year-old guidelines, a more modern diversification technique is to allocate so that each asset class contributes an equal amount of risk. Build your portfolio with low-risk assets and a little leverage, and your clients can diversify away from equities without sacrificing expected return.
Risk took a backseat during the liquidity glut as investors willingly took on more risk to earn more return. Now with the markets down 40%, risk management has resurfaced as a critical portfolio management tool. Here's a look at three approaches to measuring risk: historical, momentum, and reversion to the mean.
An asset allocation is only as good as the capital assumptions that went into it. If you are constructing portfolios based only on standard deviation and average return, you may be inadvertently heightening your clients' risk exposure. Here are some additional risks to consider.
Almost every advisor is in the business of allocating assets. What changes from advisor to advisor is the process used to allocate those assets.
If you're just starting to manage portfolios, this five-step guide can help you develop investment strategies that demonstrate your value and add to the client's bottom line.
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