Stutzer Index

Sounds like Yiddish for a back seat Saturday night escapade, doesn't' it? But...it's not.

The Stutzer index is a tool for analyzing investment performance. It’s nice for hedge funds in particular, since it doesn’t assume a normal distribution.

The Stutzer index assumes that portfolio managers design investment portfolios with the expected outcome of negative returns over a benchmark converging to zero in the long-run. It works by favoring higher values, and penalizing underperformance. This results in the index favoring portfolios with fewer extreme variations, which should give the portfolio a better-than-average shot in market returns.

The nice thing about the Stutzer index is that it’s more robust than some really basic investment portfolio performance measures, but it’s still accessible enough that you could do it on a spreadsheet.

However, it does take a lot of data over time before it will give you legit results. Also, it doesn’t take into account the fact that people get more risk averse as they get closer to retirement...or that, maybe the other way around, people get less risk averse as they have more money to play with.