Any investment represents the decision to accept risk and
those risks can come in many different forms. Therefore it is
important to understand those risks and ensure that you can
expect to be compensated for bearing those risks.
It is important to remember
- Investment values can increase (go up) and decrease (go down)
- It is possible to recieve less back than you originally invested
- Past performance is not an indication of future outcomes
The Many Forms Of Risk
It is common to think about investment Return vs. investment Risk. However, risk can come in many different forms. So, while it is important to consider general uncertainty and risk it is equally if not more important to consider the varieties and forms of risk.
- General Uncertainty: The top level of
risk is general uncertainty about the future. This is measured
with the metric standard deviation by convention. In short, this
is the average distance of the uncertainty (on both sides +/-)
from your expectation.
- For example, if you expected an 8% return but the standard deviation was 10% than the average range of your uncertainty would be between -2% and 18% and this of course, could also be 2x or more that range.
- Factor Risk: While sometimes associated
with quantitative metrics, a factor can be any specific type
of risk. They can be quantitative, fundamental, or otherwise.
A non-comprehensive but important list of potential factors are:
- Liquidity: This is the risk you can not get your invested cash out of your investment.
- Economic: Is a set of risks that link your investment to the underlying economy.
- Inflation: Is an important risk because when it rises it reduces the purchasing power of your money. This means that not growing your money above inflation makes you poorer.
- Market: Is a set of risks that link your investment to market fundamentals and specific market risks.
- Valuation: This is the risk that the original purchase price of your investment was not appropriate to the underlying value.
- Services: Investment service, vehicles, and management comes with its' own set of risks. While this is a long list of potential risk they tend to be related to the investment vehicle, strategy and/or the people running those services.
The Tranditional Approach To Risk
Risk, has always been important, but traditionally, it isn't the first consideration. The star of any investment conversation is return. We all want to know how much more money we can expect. As a result, return is normally the first dimension anyone would consider.
In the graphic below, we illustrate a typical approach where buckets are produced to illustrate levels of risk. Then one of these pre-designed solutions is chosen, or a new level can be sought to fit investor needs.
How EDS Is Different
The Order Of Man & Machine
Traditional solutions begin with human insight and then use machine-based tools to refine those insights.
While human insight is important, the problem with that approach is that humans can be biased and are limited in the amount of information they can process.
At EDS we incorporate human insight, but we begin by using machine intelligence. We do this because we believe this approach is superior. It is free of human bias and it allows us to consider a much broader and deeper universe of potential investments, creating more opportunity.
There are other solutions that begin with machine intelligence in the same way. EDS is different because it is the only solution that can apply this machine first approach with full transparency and with an understandable trade-off approach. In practice, this means that it is much easier to combine machine & human insight together.
The Real-World Complexities Of Trade-Offs
Thinking about trade-offs in investments is an idea that is an idea as old as investing. The first rigorous framework for this didn't come along until the 1950s. The idea was extended in the 1980s, and 2010s as seen below. EDS has the first technology that can combine all of these insights simultaneously. This generates a more holistic investment picture than was previously possible.
We live in an interconnected world. That could not be more apparent than when looking at the investment world.
In order to get a realistic picture of the investment world, it is best not to look at anything in isolation because almost everything effects everything else. In practice, this means a lot of calculations. More than it would be possible for any human to calculate.
You can input into our calculator to the right how quickly this number increases as the number of investments and relevant factors increase.Calculations CalculatorInput # of Investments:Input # of Personalized Factors:# of Calculations = 624,308
More Balanced & More Informed Decision Making
At EDS we are extremely proud of our technology, but that said, we don't think anything (Human or Machine) is perfect. Our approach is robust to the imperfections of the real world. We don't need or expect perfection. Machines are more honest about what they don't know than humans tend to be.
What we are really able to achieve with our technology is simple:
More balance: By measuring more and
the interconnectedness in between we are able to create more
balance amongst your investments.
- This makes your portfolio more robust across a wider range of potential scenarios
More informed decisions: Bringing this
holistic perspective to investing means that
it is possible to make more informed decisions.
- This allows us to customize a solution more closely to your needs and preferences.
- More broadly and more deeply: Our machine first approach allows us to consider a wider range of potential opportunities and risk.
Greater customization at a lower price: Unlike
traditional approaches or 'robo' alternatives,
our solutions learns what investment
preferences and/or strategy you are trying to achieve
and then executes it with more
powerful tools than were previously available.
- Every solution we produce is truly one-of-a-kind and specific to the individual or institution.
- Combined Human & Machine Insight: Due to our transparency and an approach that utilizes the same insight as traditional approaches only with an expanded toolsets and capabilities we are able to combine the best of both worlds.
- More balance: By measuring more and the interconnectedness in between we are able to create more balance amongst your investments.
Proof In Our Outcomes
This section is about risk. So as we state above, prior performance is no guarantee of future results.
With that said, what we can say is that if you use our tools, services, and/or consulting if you did not have improved results after 6 months then you would be the first not to do so. That is why we will commit to zero fees if we can't improve your outcomes.