As a Financial Advisor, I can choose from hundreds of funds to help my clients reach their investment and financial goals. Before I recommend a fund, I use a lot of different metrics to discern and evaluate the full implications of a given fund, including measuring returns, risk, risk-adjusted returns and benchmarks.
In this edition of my four-part blog series, I explain in more detail how I measure risk and help my clients balance their goals.
As in the first part of this series, consider this hypothetical case study:
- Two hypothetical managers, Manager A and Manager B, have similar investment styles and measure their performance against the same hypothetical benchmark.
- The risk-free rate of return is 3%
- The most recent annual returns for each manager and the benchmark are listed below.
In the hypothetical above, all returns are provided gross of fees; investment management fees would otherwise reduce performance that an investor would experience.
Measuring Risk Case Study Summary
When using risk to identify whether a fund is a good choice for particular clients, I take their unique goals and appetite for risk into account.
In the next post in this series, I’ll explain and discuss how financial advisors measure risk-adjusted returns in more detail.
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