The most direct means of increasing returns is through managing Risk Allocation.
This has replaced Asset Allocation as the most effective means for managing investment portfolios.
|Asset Allocation||Risk Allocation|
|Static forecasts determine allocation.||Continuous analysis based on Risk monitoring determines allocation.|
|Assets are predetermined percentages of the total portfolio.||Asset percentages are continuously adjusted, based on volatilities, correlation and pace of change.|
|Differentiates by the composition of investments.||Differentiates by how each investment behaves.|
|Typically passive to changing risk conditions as allocations are fixed.||Adapts to changing market conditions and proactively adjusts in favorable as well as unfavorable scenarios.|
|Normally invests in bonds to reduce volatility.||May default to cash in times of market stress.|
|Success is measured by performance relative to a benchmark.||Success is measured by relative risk-adjusted returns.|