Dec 2, 2018
In this episode Derek Moore discusses the concept of Risk-Adjusted Returns, Standard Deviation of Returns, Sortino Ratio, Risk Free Interest Rates. Plus, how to compare two investment returns against one another on a risk adjusted basis and why many investors might be using the wrong investor benchmarks against their portfolios.
Key Takeaways:
- • What are risk adjusted investment returns?
- • What is the standard deviation of investment returns?
- • What is the Risk-Free Interest or Discount Rate?
- • Why do people use Treasury Bills or Treasury Bonds as the Risk-Free Rate?
- • What is the Sharpe Ratio?
- • How is the Sharpe Ratio calculated?
- • How is the Sharpe Ratio different than the Sortino Ratio?
- • How larger than expected upside investment returns can actually raise the standard deviation of portfolios
- • The pitfalls of using past historical returns to try and evaluate expected returns
- • Why do many investors always use the S&P 500 Index as the benchmark?
- • What would be a more appropriate way to choose investment benchmark indexes for comparison?
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Sortino Ratio https://www.investopedia.com/terms/s/sortinoratio.asp
Sharpe Ratio https://www.investopedia.com/terms/s/sharperatio.asp