Tag Archives: risk budgeting

Proving the Value of Risk Management in Retirement Planning

The Wall Street Journal’s recent article, “Same Returns, Less Risk” discusses different approaches to managing portfolio risk while maintaining exposure to potential returns available from stocks and other riskier asset classes.  

 If you are a Portfolioist reader, you know that we’ve written about the importance of risk budgeting in the past (see, “Risk Budgeting: A Critical Tool for Portfolio Management”). You also know that we believe that risk budgeting is an important part of successful long-term investing. That’s why we constructed our line-up of Target Date Folios using a risk budgeting approach—and this stands in stark contrast to the strategy used in more traditional Target Date Mutual Funds that generally use static asset allocations that don’t adjust their risk allocations in volatile market conditions. Continue reading

Dr. Andrew Lo: ‘Buy and Hold’ Does Not Work Anymore

Dr. Andrew Lo is a thought leader in the world of portfolio management.

The MIT/Sloan School of Management professor and Director of MIT’s Laboratory for Financial Engineering has been widely quoted on the implications of the 2008 financial crisis. One theme that Dr. Lo emphasizes repeatedly is that the risks associated with different asset classes can vary dramatically over time and for this reason, risk must be tracked, forecasted and budgeted.

In a world in which the risk of any given asset class (and therefore, also the risk of any portfolio of asset classes) can change dramatically in a short period of time, a passive buy-and-hold approach may, in fact, result in unacceptable levels of volatility. Continue reading

Risk Budgeting: A Critical Tool for Portfolio Management

We are all familiar with the traditional idea of basic budgeting: you set up a plan for how much money you will save and spend each month. “Risk budgeting” is much the same idea for investors, but involves setting up a plan for how much risk you plan on taking with your long-term investments. Continue reading