Question

You give your financial advisor a second chance after their bond investment fiasco. They come up with new investment alternatives for you. They have presented you with two different mutual funds to invest in. They give you the facts of the funds and state that both funds over the past ten years have produced a 10 % average rate of return and either would be a wise investment for your future. You go home and do some research on these two funds. After remembering your FI 360 class, you calculate the risk models for both and discover that fund A has a standard deviation of 3% and fund B has a standard deviation of 25%. Now explain why you should REALLY fire or not fire your financial advisor.

Answer 1

Yes I will fire my advisor because both the portfolio are having the same return but the risk associated with both the portfolio are very much different at one hand we have face the risk of 25% while at the other hand we have to face risk of just 3% so definitely the advisor should have told us that the second one that means the portfolio that is having a risk of 3% is better on than the 25% because comparing jsut return is not enough the risk is also an important aspect to consider.