There are flaws in the traditional way of thinking about investment portfolios, according to GMO’s head of asset allocation Ben Inker.
In a new quarterly letter to GMO’s clients, called “Stop Worrying About Your Portfolio,” Inker addresses how these flaws can lead investors to make bad decisions.
“Investors have a tendency to obsess about their investment portfolios,” he writes. “On the surface, this is a perfectly reasonable focus given results in the portfolio are a crucial determinant of success for whatever purpose the portfolio is there to serve.”
However, according to Inker, performance of one’s investment portfolio is not the only determinant of success.
“Investors have a tendency to focus on the characteristics of their portfolios almost to the exclusion of other factors that will lead to success or failure for the larger objective that the portfolio is intended to serve,” he writes.
In fact, Inker believes that investors would achieve better overall outcomes if they recognized the risks outside of their portfolios that really matter and invested accordingly.