This week in his Hidden Value column for ThinkAdvisor, Joe Elsasser, CFP®, talks about how the current economic situation is making some advisors rethink their processes and plans. Advisors who craft quality contingency plans for times of market instability instill confidence in their clients and help them avoid making rash decisions out of panic.
"Humans made the switch from a hunter-gatherer culture to farming, because farming provided a reasonable level of predictability. Financial planning is a lot like farming. A financial advisor should sow seeds of confidence by using the right process, with the right risk metrics, to build contingency plans before they’re necessary."
Read the ThinkAdvisor article in its entirety.
Are You Using the Right Risk Metrics?
SmartRiskTM uses a heavy-tailed model to help advisors more accurately analyze portfolio risk to help clients avoid costly mistakes. In probability distributions, "heavy-tailed" distributions are those whose tails are not exponentially bounded. Unlike a bell curve with a "normal distribution", heavy-tailed distributions approach zero at a slower rate and can have outliers with very high values. In risk terms, heavy-tailed distributions have a higher probability of a large, unforeseen event occurring.
SmartRisk helps advisors determine a portfolio’s downside potential, allows the advisor to set reasonable expectations with clients prior to the next downturn, and potentially make adjustments to mitigate the risk.
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