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Trade off between risk and return?

Dec 10, 2012 by mohammad from Kiev, Kyi  |  Flag
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Peter C. Karp Level 20

Mohammad,

In the past, there was a sense of sanity governing global financial markets. Now, each morning brings apprehension about the direction of the markets. If people tend to follow the masses, they soon find that market trends not only influence their moods but their account balances as well. When you see a steady upward move in your portfolio balance you feel secure. It is a confirmation of your investment strategy; you feel safe and assured. However, when unforeseen world events occur; companies miss their earnings forecasts. The economic and political climate turns negative. The feeling of security can suddenly transform into fear and panic. People tend to be risk averse yet enjoy making investment gains. A balance must be struck. It is hard to see losses and even harder to realize a loss even in the name of protecting capital before more damage is done. By managing risk effectively there will be times that you will underperform the broader market while outperforming longer term with less volatility. The long term profits are all that matters and not the results of a few buys and sells. It is hard sometimes to accept the short term discipline necessary to be successful in the long term. It is not what you make, it is what you keep.

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1 Comment   |  Flag   |  Dec 13, 2012 from San Francisco, CA
Evan M. Levine, ChFC

I doubt the aprehension of markets today is much diffrent than it was in the past. It goes in cycles of course, but I would guess the aprehension about the direction of markets, say in the late 20's and 30's for example at least met - or exceeded - the uncertaintly of todays world. History does not repeat itself but it does rhyme.

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Flag |  Dec 13, 2012 near Port Washington, NY

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4 votes

Almost perfectilly cooreletad ( More Risk = More Return) ( Less Risk = Less Return) like the law of gravity in a sense.

1 Comment   |  Flag   |  Dec 11, 2012 from Port Washington, NY
David G. Niggel, CFP®, ChFC®, AIF®

A nice and easy answer.

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Flag |  Dec 11, 2012 near Lititz, PA

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