The "new normality" for the investor

Investors tend to estimate losses higher than gains of the same magnitude, and they often find it difficult to distinguish realized losses from unrealized ones. Therefore, they avoid the price volatility of investments.

Investment strategies aimed specifically at reducing volatility have rarely delivered what they promised in the past. In an environment of extremely low interest rates and higher bond price volatility, the promise of an appropriate balance between volatility and yield is even more difficult to achieve. If you want to avoid volatility today, you have to be far more willing than before to forgo returns, even to accept an absolute loss.

This study was carried out in collaboration with Bert Flossbach.

Please note: This study is available in German only.