The Role of ETFs in Asset Allocation and Portfolio Management

Sunday, March 1, 2009


One of the greatest challenges facing both institutional and individual investors in today’s environment is risk management. But what does risk management really mean? To some, it means the absolute loss their portfolio would suffer under worst case scenarios. To others it means not achieving a portfolio return sufficient to meet their goals of an early retirement, endowment funding needs or sending a child to college. Whatever the reader’s personal view of risk, there are three “back to basics” steps investors can pursue to reduce risk. They are diversification, portfolio rebalancing and expense control. These items are the foundation of proper portfolio risk management and yet all too often are forgotten, especially when the market is in an upward trend. It is not until the investing tide recedes that we see who has been taking shortcuts with their asset allocation and the consequences can be devastating.

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