Uncompensated risks are those which when exposed to provide no expected increase in returns. The risk that an individual company may run into problems is an example of uncompensated risk. The reason individual company risk goes uncompensated is because of the ease in eliminating it (e.g., invest in lots of companies instead of just one).

Compensated risks on the other hand are those which when exposed to do provide an increase in returns. Exposing yourself to the broad stock market is an example of compensated risk.

As a general rule, we attempt to diversify away all uncompensated risks and expose you to a level of compensated risk that is dependent on your need for higher returns and your tolerance for risk.

Because stock volatility has gone up dramatically over the last decade, the 30 stock rule of thumb for a diversified portfolio no longer applies. It literally takes hundreds of stocks to achieve sufficient diversification to eliminate company risk. This is why we use highly diversified funds instead of individual stocks in separately managed accounts.

Lastly, To keep your portfolio's risk at the level that is appropriate to you we will rebalance your portfolio regularly to your target allocations.