construction and risk control
is determined is sound, but the
assumptions and application of
the theory are not. The original
basis of portfolio construction was
about reducing risk but since risk
means different things to different
people and everyone has a different
timeframe in which to measure
outcomes, we can't keep using the
same simplistic framework.
level, but we need to think about
portfolio construction differently if
we're going to be client-specific.
risks change and correlations are
not static. Since market prices and
circumstances change every day, risks
and the potential returns associated
with those risks change every day.
over time if you are managing to a risk
target? Why do clients have fairly fixed
allocations to `growth' or `defensive'
assets, when the risks associated with
them are constantly changing?
return, there comes a level of
uncertainty and distribution of
to model this involves a detailed
assessment of all the risk drivers of
each asset class across the investment
spectrum, and the inter-relationships
across these asset classes.
rigour, the investment manager can
get a true understanding of the risks
present in a client's portfolio and how
they interrelate to each other, and
thereby manage according to this.
client's requirements and the risk
drivers within every investment, good
financial advisers can build portfolios
from a blank canvas. We can ignore
the flawed assumptions and peer risk
focus of the past and instead build
portfolios with the sole intention of
getting the client the best result given
the trade-offs and risks they can,
should or are prepared to take.
Australians. By their own admission,
members of the general public are by
and large financially illiterate. This
is a significant failing of education,
government, society and the industry
everyone should play a part in the
financial literacy of the population.
adviser who is always acting in their
best interests and who has access to
resources and systems that allow her/
him to build the best possible outcome
for them. I implore you to engage in
your own financial literacy and engage
such an adviser.
is a regular presenter at our courses
and workshops. For more information
on wealth management matters contact
enquiries@theprivatepractice.com.au
risk at an individual client level, but we need to
think about portfolio construction differently if
we're going to be client-specific.