There are many terms used by investment professionals and academics in their quest to define risk. These include markets, benchmarks, asset classes, styles, style boxes, investment objectives, risk factors, market dimensions, market segments, categories, market averages, buckets of stocks, rules of ownership, slices of the market, industry classifications, and indexes such as Dow Jones Indexes, Standard and Poor's Indexes, Russell Indexes, Wilshire Indexes, Morgan Stanley Capital Indexes, Wired Index, and many more. Diversification and measures of volatility, such as standard deviation, are also used to describe risk. Every one of these is an attempt to identify common risk and return characteristics among groups of stocks included in that classification. To reduce confusion, market or index will often be substituted for these terms.
An appropriate challenge to the investment industry is a call to action to develop an SEC-approved standard to measure the risk of various investments. The three-factor model proposed by Eugene Fama and Kenneth French in 1992 would be an excellent starting point. This model is discussed further in Step 8: Riskese™.
Index Fund Advisors, Inc. (IFA) is a fee-only advisory and wealth management firm that provides risk-appropriate, returns-optimized,
globally-diversified and tax-managed investment strategies with a fiduciary standard of care.
Founded in 1999, IFA is a Registered Investment Adviser with the U.S. Securities and Exchange Commission that provides investment
advice to individuals, trusts, corporations, non-profits, and public and private institutions. Based in Irvine, California, IFA manages
individual and institutional accounts, including IRA, 401(k), 403(b), profit sharing, pensions, endowments and all other investment accounts.
IFA also facilitates IRA rollovers from 401(k)s and 403(b)s.
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About the Author
Mark Hebner - Founder, Index Fund Advisors, Inc.
Founder and President of Index Fund Advisors, Inc., and author of Index Funds: The 12-Step Recovery Program for Active Investors. He is a Wealth Advisor, with an MBA from the University of California at Irvine and a BS in Pharmacy from the University of New Mexico with a specialization in Nuclear Pharmacy.