In last week's superb FT article on matching investors to investment risk, (Risk, the retail investor and disastrous new rules) John Kay rightly points out the foolishness of using recent historical volatility as a proxy for (future) investment risk. However, whilst focussing on the problems with establishing the risk of investments, he only briefly touched on determining appropriate risk levels...
Risk profiling is essential to providing good advice, and to ensuring regulatory compliance. Unfortunately, the profiling field is rife with misunderstanding and poorly designed assessment tools, leading many advisers to view risk profiling as an unnecessary box-ticking exercise, rather than a simple and effective way to improve client outcomes. A particularly problematic approach to profiling is the failure to distinguish between...
Greg Davies recently featured in the Financial Wellbeing podcast with Chris Budd In this Financial Wellbeing podcast, Greg and Chris discuss how our emotions effect our decision making process and how we can become more comfortable when making financial choices. They also cover how Greg got into applied decision science and what Behavioural Economics is and what it can do for...
Summary of full article (published by CFA Institute Research Foundation) Risk profiling is fraught with misunderstandings that lead to ill-advised approaches to determining investment suitability. These include using observed behaviour to determine risk tolerance; optimising for “behavioural” risk attitudes, rather than helping clients mitigate and control them; eliciting risk tolerance on subcomponents of overall wealth; using overengineered and unstable approaches for measuring risk...
Art is among the most emotional of asset classes. The journey from art lover to art investor can be littered with pleasure and pitfalls, and the profit may take many forms. For investors who want to take their love of art a step further, the decision to buy a piece of art as an investment may mark the ultimate clash...