Morningstar Advisor - April/May 2013 - (Page 6)

Contributors MorningstarAdvisor Samuel Lee Editor-in-Chief Jerry Kerns Editor-at-Large Don Phillips Risk, Samuel Lee says, depends as much on the investor as the investment. “Risk is the probability of failing to achieve your goals, whatever they may be,” says Lee, who is the editor of the monthly newsletter Morningstar ETFInvestor. “It is not volatility. A volatile equity portfolio would indeed be risky in the hands of an investor liable to sell after steep declines; it would be much less risky in the hands of an endowment that can tolerate decade-long bear markets.” Lee contributes two articles to our Spotlight section on risk: “The Risk of Being Overconfident,” Page 38, and “Unbalanced Portfolios and Inflation: A Risk-Parity Approach,” Page 40. Contributing Editors Dan Culloton, Haywood Kelly Contributors Christine Benz, Michael Brennan, Alex Bryan, Greg Carlson, Stephen Ellis, Philip Guziec, Eric Jacobson, Russel Kinnel, David Krempa, Candice Lee, Samuel Lee, Warren Miller, Steven Pikelny, Jeffrey Ptak, Hal Ratner, Carl Richards, Miriam Sjoblom, Kate Stalter, James X. Xiong, John Zecy, Adam Zoll Data Editors Mnason Chew, Alina Tarlea Proofreader Ann Marie Gray Art Director Alexander Skoirchet Illustrator James Yang Photographer Todd Joyce Publisher Leslie Marshall Director of Advertising Sales Mary Uribe Regional Sales Directors Dan Atkinson, Tony Lignelli, Kristina Niemi, Stuart Roge Morningstar, Inc. Hal Ratner Chairman and CEO Joe Mansueto To Hal Ratner, risk isn’t part of investing; it defines investing. “I think all investment decisions can be reduced to four things: investment risk, investor risk aversion, investor risk capacity, and uncertainty,” says Ratner, who is the Morningstar Investment Management division’s chief investment officer, Europe. “The first three can be quantified and described in terms of a probability distribution. But because the probability distributions of investment variables are unobservable and ever changing, uncertainty becomes a critical concept with which investors must grapple.” In Morningstar Conversation, Ratner discusses these concepts with two risk researchers, Joseph Davis of Vanguard and Dennis Stattman of BlackRock (“Risk’s Wake-Up Call,” Page 50). He also writes about his own views of risk in our Spotlight section, “It’s All About Risk,” Page 36). Managing Director, Design David Williams Director, Corporate Marketing Kristin Mateja How to Reach Morningstar Advisor Subscriber Services and Circulation magazine_custserv@morningstar.com Editorial and Letters to the Editor magazine_editor@morningstar.com Advertising magazine_adrates@morningstar.com Rate card available at http://advisor.morningstar.com/products/advisormagazine.asp Reprints and Licensing magazine_licensing@morningstar.com How to Reach Morningstar Customer Service +1 312 384-4000 Advisor Product Sales +1 877 586-5405 Data Questions +1 312 696-6600 Morningstar Advisor is published bimonthly by Morningstar, Inc., 22 W. Washington St., Chicago, IL 60602. An annual subscription for delivery in the U.S. is $60. All exhibit data in this magazine is provided by Morningstar and Ibbotson Associates unless otherwise noted. © 2013 Morningstar. All Rights Reserved. The information contained herein: (1) is intended solely for informational purposes; (2) is proprietary to Morningstar and/or its content providers; (3) may not be copied or distributed; (4) is not warranted to be accurate, complete, or timely; and (5) does not constitute investment advice of any kind. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past James Yang performance is no guarantee of future results. “Morningstar” and the Morningstar logo are registered marks of Morningstar, Inc. James Yang says that often his approach to illustration is finding jokes in the topic. “The jokes don’t have to be funny,” he says, “but it helps me find metaphors that immediately connect with readers. In this sense, risk was a fun project to illustrate.” Yang has illustrated the magazine before (February/March 2011). “Morningstar is always a fun client, because you are asked to create a series of images that loosely relate. You have a chance to create a story.” Yang has won more than 200 awards for his excellence in illustration. His work has also appeared in The New York Times, Time, The Wall Street Journal, and the Financial Times. 6 Morningstar Advisor April/May 2013 Disclosure: Morningstar licenses its indexes to certain providers, including BlackRock Institutional Trust Company, N.A., First Trust, and Deutsche Bank, for use in exchange-traded funds and exchange-traded notes. These ETFs and ETNs are not sponsored, endorsed, issued, or sold by Morningstar. Morningstar does not make any representation regarding the advisability of investing in ETFs and ETNs that are based on Morningstar indexes. 1390857 http://advisor.morningstar.com/products/advisormagazine.asp

Table of Contents for the Digital Edition of Morningstar Advisor - April/May 2013

Morningstar Advisor - April/May 2013
Contents
Contributors
Letter From the Editor
The Pursuit of Happiness and Financial Advice
What Strategies Do You Use to Control Risk?
Driven to Succeed for Clients and Family
How to Assess a Portfolio’s Bond Risk
Luck, Skill, and Investing
Investments á la Carte
Investment Briefs
Investing’s No- Brainers Have Costs
A Defensive Ride
Risk On/On Risk
The Risk of Being Overconfident
Year of Living Dangerously
The Risk-Parity Approach
A Guide to Mutual Funds Running Risk-Parity Strategies
What Moats Tell Us About Risk
Risk’s Wake-Up Call
Seeing Is Believing
Why Investors Lag the Returns of Their Funds
Liquidity Signals
Pump Them Up
Golden Oldies Keep on Truckin’
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
Our Social Blind Spot

Morningstar Advisor - April/May 2013