Journal of Investing
Vandenbroucke, J. (2019), “Adaptive portfolios and the power of diversification”, Journal of Investing. DOI 10.3905/joi.2019.1.089
In a nutshell
“Investing is an emotional process. Managing these emotions is the greatest open challenge in financial technology.” The quote is by Andrew Lo, thought leader of MIT and expert in many fields.
The current publication describes how to address the emotional component of investing at crucial stages in the wealth management process, notably: investor profiling, product positioning, and portfolio construction.
The bottom line in all three cases is to enrich the classic approach with insights from behavioral finance. Innovation is a change that improves, also if in full continuity with the past.
In the context of a digitized investment process, enrichment allows embedding humanity into a set of algorithms.
In the early ‘50s of the last century, human advisors approached investors as if they were machines, building on the rules of rationality. Today, technology allows computers to provide advice. The publication shows how to account for the human nature of the investor.