Why Traditional Risk Profiling Is Not Enough

October 27, 2015

Asset Allocation Drives Returns

 

Asset allocation is crucial to achieve an investor’s goals and protect their risk-adjusted returns. The chosen mix of different asset class exposures will have a far bigger impact on the investor’s risk-adjusted returns than any individual choice of specific security or fund. Furthermore, the right mix of asset classes, subject to disciplined rebalancing, offers important diversification benefits across a variety of market conditions, while also reducing correlation risks.

Our technology and focus on clients’ goals allows us to avoid sweeping market-orientated rules of thumb e.g. you should determine your equity exposure by subtracting your age from 100. While these guidelines might be useful in avoiding the most common personal finance mistakes, they ignore too many short-term variables and don’t allow the investor to be flexible depending on market conditions.

Smart Trading

Portfolio rebalancing is a very important process and is often overlooked. At ETFmatic rebalancing is implemented by an automated trading system.

Focusing the asset allocation on indexes gives us an additional level of flexibility when selecting the most appropriate instruments to use in our portfolio rebalancing process.

ETF providers are well known for continuously driving down their costs and passing these savings on to their customers. As such, we continuously evaluate which ETFs are most appropriate for any given index and incorporate this into the overall rebalancing process.

 

 

 

Drago Indjic is portfolio manager and director at ETFmatic.

ETFmatic offers an investment solution that goes beyond the traditional robo-advisor offering. The company is close to launching throughout Europe.

To see exactly how ETFmatic works you can try out a simulation portfolio here. You can also request the latest version of our whitepaper ([email protected]) to join the discussion.

 

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