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August
17, 2010 - Vol 4, Issue 33
Dear Reader,
Our beliefs about risk and return determine how we
construct portfolios and manage risk. Research over the
last decade suggests that a number of the ideas on which many
investors and advisors rely lead to portfolios that are too highly
exposed to market risk. In this article, we review a number
of ideas that determine how we select assets and how we determine
what to expect from those assets.
The past couple
of months have been difficult for investors, but we are holding to
our view that the recovery will continue and stocks will gain
ground. Bob Doll, Vice Chairman and Chief Equity
Strategist for Fundamental Equities at BlackRock, discusses the
current situation, the predictions he made at the beginning of 2010
and opportunity in the financial markets for the second half of the
year. We thank BlackRock for their sponsorship.
In this guest contribution, Manish Malhorta proposes a new
framework to solve many problems associated with retirement income
planning, one that answers questions investors often ask, such
as: "How much retirement income can I have with only a 10%
chance of failure?" and "How much do I need to have now to
draw $50,000 for 30 years with full certainty?"
New ideas, such as tactical asset allocation and the use of
alternatives, have seen some uptake even before the market
crisis, particularly within large institutions, but they are
receiving increased attention as solutions for risk-averse clients.
This article examines some of the evolutions, using data from a Cerulli
Associates survey of Advisor Perspectives readers conducted in
June and July of 2010.
When Dan Richards talks to successful advisors about their
business objectives, for most increasing assets is at the top of
their list. Some advisors mistakenly believe, though, that winning
a greater share of assets from existing clients is driven by
performance.
Thanks in large part to the current crisis, investors are showing
renewed interest in portfolio construction, and core-satellite
investing is regaining popularity. So why the interest in core?
It could be for either of two reasons - hedging or completeness - as
Ron Surz explains.
Our letters to the Editor include three responses to articles in last
week's issue from Harold Evensky of Florida-based Evensky
& Katz.
On a lighter note, we were sent a request for a proposal from the
Federal Reserve Bank to help implement its monetary policy.
Lastly, we highlight submissions to Market Commentaries.
We welcome guest submissions from our readers. For more
information, here are our guidelines.
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Misconceptions about Risk and
Return Uncovered