Introduction

Any investment represents the decision to accept risk and those risks can come in many different forms. Therefore it is important to understand those risks and ensure that you can expect to be compensated for bearing those risks.

It is important to remember:

• Investment values can increase (go up) and decrease (go down)
• It is possible to receive less back than you originally invested
• Past performance is not an indication of future outcomes

The Many Forms Of Risk

It is common to think about investment Return vs. investment Risk. However, risk can come in many different forms. So, while it is important to consider general uncertainty and risk it is equally if not more important to consider the varieties and forms of risk.

General Uncertainty

The top level of risk is general uncertainty about the future. This is measured with the metric standard deviation by convention. In short, this is the average distance of the uncertainty (on both sides +/-) from your expectation.

For example, if you expected an 8% return but the standard deviation was 10% than the average range of your uncertainty would be between -2% and 18% and this of course, could also be 2x or more that range.

Factor Risk

While sometimes associated with quantitative metrics, a factor can be any specific type of risk. They can be quantitative, fundamental, or otherwise.

A non-comprehensive but important list of potential factors are:

• Liquidity: This is the risk you can not get your invested cash out of your investment.
• Economic: Is a set of risks that link your investment to the underlying economy.
• Inflation: Is an important risk because when it rises it reduces the purchasing power of your money. This means that not growing your money above inflation makes you poorer.
• Market: Is a set of risks that link your investment to market fundamentals and specific market risks.
• Valuation: This is the risk that the original purchase price of your investment was not appropriate to the underlying value.
• Services: Investment service, vehicles, and management comes with its’ own set of risks. While this is a long list of potential risk they tend to be related to the investment vehicle, strategy and/or the people running those services.

The Traditional Approach To Risk

Risk has always been important, but traditionally, it isn't the first consideration. The star of any investment conversation is return. We all want to know how much more money we can expect. As a result, return is normally the first dimension anyone would consider.

In the graphic, we illustrate a typical approach where buckets are produced to illustrate levels of risk. Then one of these pre-designed solutions is chosen, or a new level can be sought to fit investor needs.

Investor Management

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The Real-World Complexities Of Trade-Offs

We live in an interconnected world. That could not be more apparent than when looking at the investment world.

Thinking about trade-offs in investments is an idea that is as old as investing. The first rigorous framework for this didn't come along until the 1950s. The idea was extended in the 1980s, and 2010s as seen below. EDS has the first technology that can combine all of these insights simultaneously. This generates a more holistic investment picture than was previously possible.

You can input into our calculator below how quickly this number increases as the number of investments and relevant factors increase.

How EDS Is Different

In order to get a realistic picture of the investment world, it is best not to look at anything in isolation because almost everything effects everything else. In practice, this means a lot of calculations. More than it would be possible for any human to calculate.

More Balanced & More Informed Decision Making

More Balance

By measuring more and the interconnectedness in between we are able to create more balance amongst your investments. This makes your portfolio more robust across a wider range of potential scenarios.

Greater Customization

Unlike traditional approaches or 'robo' alternatives, our solutions learn your investment preferences and strategy to execute with more powerful tools than were previously available.

Combined Human & Machine Insight

Our approach utilizes the same insight as traditional approaches but with expanded toolsets and capabilities, combining the best of both worlds.

At EDS we are extremely proud of our technology, but that said, we don't think anything (Human or Machine) is perfect. Our approach is robust to the imperfections of the real world. We don't need or expect perfection. Machines are more honest about what they don't know than humans tend to be.

Learn more about our approach