- Losses below 10 per cent in bad sell-offs
- Measures to limit turnover and control costs
- Superior risk-adjusted performance
‘How much would you be prepared to lose in a given year?’ is a cornerstone of risk questionnaires, but maybe it would be better to ask investors ‘How much portfolio performance would you sacrifice to limit losses?’
Since mid-2008, despite the horrific bear market of the global financial crisis, the SPDR S&P 500 (SPY) exchange traded fund (ETF) has averaged an 11 per cent total return annually. SPY investors who rode out the GFC have done very well since, but had there been the option of avoiding a 46 per cent fall (taking month-end figures) from May 2008 to February 2009, would they have been happy to trade in a few basis points of their annualised return?