Market Uncertainty And The Role Of Indexing: Part II
- Topics:
- Commercial Lending
- Tags:
- Asset,
- Asset Allocation,
- Asset Management,
- Business Operations,
- Indexing,
- Operational Planning,
- Portfolio,
- State Street
- Source:
- State Street
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Overview: The article states that it is important for all investors to evaluate their portfolios regularly and make adjustments. However, any modifications should be based on changes in long-term expectations - not short-term uncertainties. While regular reviews may result in updated assumptions and ultimately adjustments to the portfolio, priority should first be given to ensuring that strategic asset allocation reflects long-term expectations. This decision will have the greatest impact on long-term results. Once determined, a core allocation to index funds is the ideal way to maintain the integrity of a well thought out strategic asset allocation. Indexing ensures that the portfolio is fully invested and fully diversified at low cost and with little monitoring. Active portfolios can also be used to implement a plan's strategic asset allocation. However, finding managers who can (1) consistently outperform (or at least earn back their management fees) and (2) remain true to their style category can be difficult. The uncertainty around whether a chosen manager will meet expectations only increases the chances of performance shortfall. In volatile times, plan sponsors might prefer the low maintenance, no surprise approach that indexing provides.
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Format: HTML | Date: Jul 2003 | Pages: 1
