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The Popular Risk Parity Asset Allocation Strategy Can Help Us Avoid Perfect Storms (The Wall Street Journal)
Many advisors have been in favour of using risk parity as an allocation strategy, but others have pointed out some fundamental flaws. Risk parity refers to allocating in a a way that puts an equal distribution of risk among the “forces” that drive various asset classes in a portfolio.
In a new WSJ column, Kevin Kneafse senior advisor to Schroders Multi Asset Investment and Portfolio Solutions, writes that despite some criticism it has received, risk parity does offer value.
“Risk parity is good at harnessing the power of diversification, but diversification is blind to what you pay to gain balanced exposure,” Kneafsey writes. A traditional portfolio of 60% stock and 40% bonds has risk “highly concentrated in one return driver: economic growth.” And it’s exposure to this sort of risk that has given us perfect storms.
“If your income is a function of the economy’s strength and the assets in your portfolio are concentrated in equities, when economic growth slows, you’re going to get hit on both fronts. …That’s what we think we can avoid by using a risk parity approach. It allows us to begin by mitigating risk before we bring the additional information we have as advisers–asset valuation, managing market extremes–to bear on the portfolio.”
Why Investors Are Loving European Stocks (Investment News)
European stocks have become the new hot investment. Chris Alderson, president of T. Rowe Price International told Investment News that the interest in European stocks is being driven by the improvement in European economies. “The tail risk is off the table. Maybe most importantly, they’re a lot cheaper than stocks here in the U.S.,” he said.
He also pointed out the areas of the eurozone in which he sees the most opportunities. “We’ve recently moved our focus from luxury exporters, such as Gucci (GUCG) and Ferrari (FERI), to more domestic stocks in Spain and Italy. We’ve seen significant improvement in those economies. International small-caps could pick up, too. They haven’t had anywhere near the rally small-caps have had in the States.”
5 Ways Your Brain Tricks You Into Making Horrible Investment Decisions (Value Stock Guide)
When it comes to investing, your brain is often your worst enemy. Valuestock highlights five common ways the brain tricks people into making bad investment decisions.
1. Herd behaviour in which investors do what everyone else is doing. This “forces investors to miss out on the bottom floor of booming markets,” and prevents them from “getting out before the market hits the top” or when they sense danger. 2. The brain confuses cheap and good value. 3. You throw good money after bad because of the time and money already invested in it. 4. You practice loss aversion which in turn leads to bad choices. 5. Your brain tricks you into thinking the “future is more unpredictable than it really is.”
Six Things Advisors Can Do To Become Better Leaders (Advisor Perspectives)
The financial industry needs to work on its communication and people skills, according to practice management consultant, Beverly Flaxington. In a new Advisor Perspectives column, she highlights six simple things that can help improve communication and make advisors better leaders.
1. “Learn how to present with confidence.” 2. “Remember that they can work elsewhere.” 3. “You can never communicate enough.” 4. “Learn what the people below you do every day.” 5. “Let them bring forth both problems and solutions.” 6. “Recognise that it’s not all about the money — or assets.”
Chase Wealth Management Gets New CEO (Marketwatch)
JP Morgan has named Michael Boardman the CEO of Chase Wealth Management. Boardman joins from US Bancorp where he was president of the Private Client Reserve. He is expected to grow Chase Private Client and Chase Investments across Chase Wealth Management. Boardman will also work closely with the Private Bank at J.P. Morgan and report to Barry Sommers, CEO of the Consumer Bank.
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