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The Challenges of Managing Investment Risk 

16 0 10

The study of “risk” in our financial world has been discussed for decades, and it has grown to encompass dozens of different opinions and methodologies. When it comes to understanding and measuring risk specifically within wealth management, recently things have really become complicated.

In his book “A Random Walk Down Wall Street”, the renowned Princeton economist and professor, Burton Malkiel said: “Risk is a most slippery and elusive concept. It’s hard for academic economists let alone investors to agree on a definition and to understand what it means.”

A Princeton professor of Economics when discussing the issue of defining a risk profile for clients suggested, that we may as well ask the client how many red blood cells he has in his system as in both cases he is aware of the concept but cannot comprehend the implications.

It is also completely clear that attempting to accumulate assets for retirement without exposure to some risk is almost futile, and the whole middle class in the community would fund themselves in an impossible situation.

It is customary for financial Professionals aligned with compliance directives to build each client a “Risk Profile” and then purchase suitable investments aligned with the profile, however, we question the value of this methodology.

The “Risk Profile” is an evaluation of an individual’s willingness, capacity, and ability to take on risks. A risk profile........

© The Times of Israel (Blogs)

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