MIT Professor Andrew Lo was recently on Wealthtrack with Consuelo Mack. This episode is well worth watching in its entirety which you can see below. Lo mentions that in in today’s market investors need to be aware of three new rules for investing. To paraphrase Lo:
- Markets are not stable. Investors need to actively manage risk.
- Investors suffer from “diversification deficit disorder.” In short, diversification amongst stocks and bonds is not enough.
- Stocks may perform over the long run, but “buy and hold” is dead. Investors need to pay more attention to their portfolios in the short run.
In addition Lo was also recently interviewed at Money magazine. The entire piece is not online yet but in a summary Lo notes the importance of diversifying your portfolio as broadly as possible in the face of volatility that “most of us didn’t sign up for…”
In the end Lo notes the fact that investors need to spend more time learning about their investments and asking questions about the fundamental nature of their investments. Whether investors like it or not they need to understand the risk and be responsible for their investment portfolios.