What is risk?
At its most basic level, risk can be defined as the extent to which actual investment performance may deviate from expectations. Defining and establishing appropriate expectations is a critical aspect of a financial advisor’s business.
Prior to joining CMG Capital Management Group, while working as a consulting Actuary; I made a living by putting a price tag on risk. Insurance companies need to be reasonably convinced that the premiums they charge their clients will be sufficient to cover future claims, administrative and operating expenses, and provide profit while constantly maintaining a competitive premium level in order to attract and retain clients. This is a complicated endeavor which involves more than a bit of science as well as art. Having a sound understanding of risk is critical to being able to quantify it.
Here at CMG, we often spend time discussing risk with financial advisors to help them appropriately allocate their clients’ portfolios. Often what appears to be a well diversified portfolio from an asset allocation perspective turns out not to be well diversified from a risk perspective.