3 ways to manage risk

GAIA 3 ways to manage risk

GAIA members were very fortunate to hear from Professor Bob Merton in May 2021. The American economist, Nobel Memorial Prize in Economic Sciences laureate, and professor at the MIT Sloan School of Management, shared his thoughts on Capital Market Assumptions/Expected Returns.

The presentation focused on key aspects of capital market returns, S/D and Sharpe Ratios since 1926. He also compared Expected Returns v S/D of MSCI World to various regions including US, Canada, Switzerland, Sweden, Australia, New Zealand, Singapore, Chile and China.

Professor Merton emphasized that the correct risk-free asset is critical, given the goal.

“If you do not measure risk correctly, you cannot manage risk correctly”.

He also explained that the only three ways to manage risk are:

1- Diversification

2 – Hedging

3 – Insurance or a combination of each.


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