not stock picking or managed-fund picking.
It's about getting a client's structure and
financial life in order, and keeping it that way
forever. This means moving clients towards
their goals and objectives in a professionally
managed way.
afford to, portfolios should be dynamically
managed to focus on and control these risks.
The current industry process simply does not
do this, even though it claims to.
i.e. a return over and above inflation
outcome over a defined time period. The
industry approach to meeting the investment
objective has been to set a broadly fixed
`strategic asset allocation' (SAA) of 60/40,
for instance, and implement this along single
asset-class lines (typically in a multi-manager
structure for each asset class).
construction in Australia, and in fact,
the world.
at different times meant you could get a better
outcome with less risk when you combined
these assets together in a portfolio (the concept
of correlation). In other words, don't put all
your eggs in one basket. His work resulted in
an optimal portfolio that was about 60% US
thought process and concept was revolutionary,
unfortunately what followed wasn't.
principle, instead of the principle of risk
reduction even though this 60/40 result was
very specific for the particular time period and
data-set for which it was tested. Furthermore,
Harry Markowitz himself said that more
robust models should be used to forecast future
expected returns, risks and correlation to come
up with a more robust model. They weren't.
It spread globally and now we, in Australia,
essentially do the same thing though our
SAA is closer to 70/30.
instead of 60% being in US equities and 40%
in US Government Bonds, it was now 60% in
`growth' assets and 40% in `defensive' assets.
bonds, hedge funds, sector funds, distressed
debt, private equity, etcera. These asset classes
became identified as `diversification', and were
classified as either `growth' or `defensive'.
factors the components of risk that contribute
to the overall behaviour of the `asset class'.
same risk factors, then they largely carry the same
risks and so aren't diversifiers at all. The year 2008
confirmed this, with catastrophic results.
circumstances and meets your future needs, you need to engage an adviser
that doesn't take a `one size fits all' approach. By
Principal at Lane Moses.