Last Updated Sep 23, 2011 3:59 PM EDT
Focus on Managing Returns The New Finance: "Focus on the things you can actually control."
Active management focuses on trying to manage the part of the investment experience we have no control over: the returns we earn from our investments. Unfortunately, there's only one person who knows where the market is going, and none of us gets to speak to that person and get an answer -- at least in this lifetime (and it won't matter in the next one). Thus, prudent investors focus on the things they actually can control:
- The amount of risk they take
- Diversifying those risks across asset classes/risk factors, minimizing idiosyncratic risks
- The structure of investment vehicles they use to implement their plan
- Keeping costs low and tax efficiency high