In this episode Derek Moore discusses the concept of Risk-Adjusted Returns, Standard Deviation of Returns, Sortino Ratio, Risk Free Interest Rates. Plus, how to compare two investment returns against one another on a risk adjusted basis and why many investors might be using the wrong investor benchmarks against their portfolios.

Key Takeaways:

• • What are risk adjusted investment returns?
• • What is the standard deviation of investment returns?
• • What is the Risk-Free Interest or Discount Rate?
• • Why do people use Treasury Bills or Treasury Bonds as the Risk-Free Rate?
• • What is the Sharpe Ratio?
• • How is the Sharpe Ratio calculated?
• • How is the Sharpe Ratio different than the Sortino Ratio?
• • How larger than expected upside investment returns can actually raise the standard deviation of portfolios
• • The pitfalls of using past historical returns to try and evaluate expected returns
• • Why do many investors always use the S&P 500 Index as the benchmark?
• • What would be a more appropriate way to choose investment benchmark indexes for comparison?

Mentioned in this Episode:

Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk

Sortino Ratio https://www.investopedia.com/terms/s/sortinoratio.asp

Sharpe Ratio https://www.investopedia.com/terms/s/sharperatio.asp