Importance of Managing Risk in Investment

Managing risk in investment involves considering risk-adjusted wealth or return rather than solely focusing on expected return or wealth. Indices, often viewed as neutral benchmarks, play a crucial role in investment decisions, influencing both active and passive investment strategies. For active managers, the challenge lies in balancing personal preferences with the need to align with market benchmarks like the S&P 500. Understanding the discretionary nature of index composition is essential for navigating investment strategies effectively.