The whole library
12 articles
Clear filtersAsset Allocation
The split between asset classes is the decision that determines most of a portfolio's variability. It is also the one made least often and reviewed least carefully.
Rebalancing
Left alone, a portfolio drifts toward whatever has performed best. Rebalancing restores the intended weights, which means selling what has risen.
Dollar-Cost Averaging
Investing a fixed amount at regular intervals. It is two different things depending on whether it describes ongoing contributions or the deployment of a lump sum.
Horizon and Risk Tolerance
Two different constraints that are frequently treated as one. Horizon is a fact about when the money is needed; tolerance is a fact about what will actually be held through.
Choosing a Benchmark
A return means nothing on its own. What it is compared against determines whether it was good, and the comparison is frequently chosen to flatter.
Tracking Error
How far a portfolio's returns deviate from its benchmark, measured as a standard deviation. It quantifies how different a portfolio is, not how good.
Sharpe, Sortino and Risk-Adjusted Return
Return per unit of risk, where risk means the variability of returns. The measures are useful, widely quoted, and rest on assumptions that returns do not satisfy.
The Efficient Frontier
The set of portfolios offering the highest expected return for each level of risk. A foundational idea, and one whose inputs are estimates with enough error to move the answer entirely.
Performance Attribution
Decomposing a return into the decisions that produced it. Without it, a good year and a lucky year look identical.
Home Bias
Investors everywhere hold far more of their own country's market than its share of the world would suggest. The pattern is universal, well documented, and only partly rational.
Concentration and Diversification
Diversification lowers the variability of an outcome and lowers the extremes in both directions. Which is preferable is a question about objectives rather than about markets.
Taking Money Out
Drawing down a portfolio is a different problem from building one, because the order of returns starts to matter. The same average return can produce very different outcomes.