are also several asset classes that carry risk but have been inefficient in delivering returns commensurate with the risks taken. This kind of risk is not worth taking. As such, many investors struggle to develop an asset allocation that captures the right blend of the markets that have maximized returns at given levels of risk. Case in point, many investors seem comfortable investing in companies that are best described as glamour or large growth stocks, presuming they perform better than small or value stocks. These investors would be surprised to learn that growth companies actually have a poor history of delivering risk-commensurate returns. Commodities, private equity, long-term bonds and technology stocks have also failed to historically maximize returns for risks taken. Failing to understand which blend of investments are worth their risk could cause investors to earn lower returns than they could if they simply bought, held and rebalanced a blend of indexes that optimizes returns at a given level of risk.
Investors Get Commodity Fever Commodities have developed a reputation for providing a hedge against inflation and a low correlation to equities. Further research into this subject reveals that no such advantage exists. A study90 by former USC finance professor, Truman Clarke, details the lack of substantiation for the claims made by commodities proponents. A commodity is purchased with the hope that an increased demand or a decreased supply of the item will cause its price to increase. â€œRemember when you buy a commodity, youâ€™re not buying something that generates earnings
Published on Jun 1, 2015
This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...