Allocating Assets for Effective Risk Management
If
you decide to open a bicycle store, you can expect to see sales revenues
in the spring and summer--and nothing for the rest of the year. If you
decide to open a downhill ski equipment store instead, you can expect
revenues in the winter--and nothing in the summer. Whichever option you
pursue, unseasonable weather poses a significant risk that can devastate
your business.
If you decide to open a store that
sells skis and bicycles, you can expect to see revenues year-round.
Better still, an especially warm winter may hurt ski sales, but your
bicycle business may pick up!
This simple example illustrates an
important point: bad market news or weather for one business is good for
another, so investing in both can help you avert losses due to unexpected
news. The difficulty comes in allocating the right percentage of your
assets to the right complementary investments.
The good news is that effective asset
allocation is a matter of matching your goals with financial
probabilities.
That's a simple
chore for anyone who has a graduate degree in statistics and expertise in
economic theory--for everyone else, there's Compass. Click here for more
information about our
expertise.
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