Risk management has become extremely important in the past year or two. The risk management teams at many firms have begun to reassess their roles and the way they manage risk in order to prevent past mistakes from being repeated. However, shouldn’t others also know and understand the impact that risk has on a portfolio?
Unfortunately, many investors are acutely unaware of how their portfolio’s risk is handled and how it affects their returns. If they did they would realize that some portfolio managers take unnecessary risks in order to benefit their firm over their individual client. One would think that after 2008, investors wouldInvestor take more care to learn about investment strategies being utilized by the firms they put their trust in, but this is not always the case. It is important that investors understand how their investments are being handled in order to prevent unnecessary losses. When a loss does occur, or a portfolio underperforms, investors are quick to blame those handling their investments, but really they must take some of the blame on themselves. If you are unaware of how your assets are being handled and have turned a blind eye during the past quarter you cannot put 100% blame on your portfolio manager (some yes, but certainly not all).
An article by Business Insider writer, Cullen Roche, listed a few tips in order to help the investor avoid underperformance from their portfolio:
1. Always be flexible
2. Use multiple asset classes and create non-correlation if possible
3. Don’t be emotionally biased
4. Never stop learning and recognize that you know less than you think you do
5. Create rules within your approach and follow them
Roche goes into far more detail in his article, and I thought it would be a great idea for investors to check out. This is clearly something that investors should and need to become more aware of. Don’t you want to know how your money is being handled? What are some other things investors should keep in mind?