A New Way of Thinking: Defined Outcome Investing as a Means to Mitigate Aversions

The average investor defines and mitigates risk in ways that do not align neatly with classical financial theory. Deeply ingrained aversions to loss, risk and ambiguity often lead to investment decisions that clash with the imperative of maximizing risk-adjusted returns. Indeed, a growing body of research in behavioral finance confirms that cognitive biases can materially and adversely affect portfolio performance.

But no amount of research will transform how and why human investors make decisions. Ultimately, the typical investor wants more security, predictability and transparency than has traditionally been available in the marketplace. That unmet need results in a disconnect between portfolio performance optimization and investor behavior.  A solution can be found in defined outcome investing strategies.

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