Today, the investment industry is characterized by increased attention to diversification, a greater focus on risk management and broader choices. Still, many types of investments are not fully utilized by either advisors or individual investors. A full 58% of mutual funds reside outside the traditional domestic equity nine-box style grid, yet many investors have not fully explored these alternatives in their portfolio. Furthermore, individuals continue to display a limited understanding of how the different elements of a portfolio can work together to achieve a particular risk/reward profile - ultimately investing in too many funds with similar holdings, investment strategies and risk/reward profiles. The result: Mutual fund collectors and not enough Investment Strategy.
We believe individuals should consider adopting an approach in line with the investment strategies practiced by institutions. A Modular approach to portfolio construction, the use of a broader opportunity set and a more clearly defined set of investment goals - including time horizons and return requirements - are all elements of an approach used primarily by institutions. Today, individual investors can adapt these institutional-style strategies with Modular Portfolio Construction.
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