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The Handbook of Personal Wealth Management, 8th Edition by Jonathan Reuvid

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1.1

An introduction to investment risk

CAZENOVE CAPITAL MANAGEMENT

What do we mean by risk?

Risk means different things to different investors. Consider the examples below:

•  The trustees of a final salary pension scheme are concerned primarily with the risk that the scheme’s investments may not keep pace with its liabilities.

•  A fund manager may be monitored against a market index and therefore the risk of underperforming that index is the main focus.

•  An absolute return manager aims to deliver positive returns regardless of market conditions. Therefore, the risk of delivering negative returns far outweighs any concerns regarding index-relative performance.

Understanding a fund manager’s approach to managing investment risk is an important ...

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