Understanding Investment Risk and Uncertainty in Your Portfolio

understanding investment risk uncertainty your portfolioInvesting is like finding the love of your life. You go on a few dates, you determine your chemistry, and if the connection is strong enough, you might even marry. Most of us would agree that, when it comes to finding the love of your life, there’s no way to avoid risk. You have to be vulnerable. Your love interest might not reciprocate. But in the face of all that uncertainty, you choose a degree of risk with which you are willing to participate. The same goes for investments.

Investors can choose the amount and type of risk that they want. The biggest factor in the amount of risk that they are taking is the ratio between stocks and bonds. Stocks tend to have higher returns, but also higher risk. Bonds tend to be more predictable and less risky, but the returns are smaller. It’s important to remember that risk and return are related: An investor cannot get more return without taking more risk.

When determining the level of risk, an investor should consider the following three suggestions:

Don’t Make an Emotional Investment

At its simplest, emotional investing happens when investors buy into the market when prices are high, then flee and panic when prices drop. Reacting this way causes investors to buy high and sell low. Investors need to realize that movements of the stock market are based on new information, and prices move incredibly fast.

Investors should stick with their investment plan. The reason for their investment shouldn’t be that other people were buying or that other people were making money on it.

Patience is Key

Investors should be patient with their investments. They should consider what they are trying to achieve, determine the amount of risk they’re willing to take, and then commit to an asset allocation. By committing to their allocation, with an appropriate level of risk, investors can anticipate a good investment experience no matter how volatile the marketplace becomes.

Ultimately, Investing Comes Down to You

Many of us are familiar with the adage that you should subtract your age from 100, put the remaining percentage into stocks, and the rest should go into bonds. However, with life expectancy increasing, this axiom might not be relevant anymore.

Likewise, many of us have probably been instructed to participate in an investor questionnaire to determine the formula that works best for us. These quizzes don’t always reflect us, though, and sometimes we might even cheat our way through them by catering answers to achieve the results we want.

Ultimately, investors should ask these three questions when investing: Does that fit my goals? My time horizon? My risk tolerance? The portfolio that reflects the investor best is the one that will serve the investor best.

Investing is a lot like finding a true love: You have to think about how much uncertainty — what degree of risk — you are willing to put up with. It is important to remember when investing, investors should stick to their investment plan and not make decisions influenced by everyone around them; they should be patient with their investments; and they should choose a portfolio that reflects them.

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McLean Asset Management Corporation (MAMC) is a SEC registered investment adviser. There are many different interpretations of investment statistics and many different ideas about how to best use them. Past performance is not indicative of future performance. The information provided is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. There are no warranties, expressed or implied, as to accuracy, completeness, or results obtained from any information on this presentation. All investments involve risk.
The information throughout this presentation, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission there of to the user. MAMC only transUnderstanding Investment Risk and Uncertainty in Your Portfolio Keyword: understanding investment risk and uncertainty your portfolio How Much Risk Should It Take to Fall in Love with your Investments Investment is like finding the love of your life. You go on a few dates, you determine your chemistry, and if the connection is strong enough, you might even marry. Most of us would agree that, when it comes to finding the love of your life, there’s no way to avoid risk. You have to be vulnerable. Your love interest might not reciprocate. But in the face of all that uncertainty, you choose a degree of risk with which you are willing to participate. The same goes for investments. Investors can choose the amount and type of risk that they want. The biggest factor in the amount of risk that they are taking is the ratio between stocks and bonds. Stocks tend to have higher returns, but also higher risk. Bonds tend to be more predictable and less risky, but the returns are smaller. It’s important to remember that risk and return are related: An investor cannot get more return without taking more risk.å When determining the level of risk, an investor should consider the following three suggestions: Don’t Make an Emotional Investment At its simplest, emotional investing happens when investors buy into the market when prices are high, then flee and panic when prices drop. Reacting this way causes investors to buy high and sell low. Investors need to realize that movements of the stock market are based on new information, and prices move incredibly fast. Investors should stick with their investment plan. The reason for their investment shouldn’t be that other people were buying or that other people were making money on it. Patience is Key Investors should be patient with their investments. They should consider what they are trying to achieve, determine the amount of risk they’re willing to take, and then commit to an asset allocation. By committing to their allocation, with an appropriate level of risk, investors can anticipate a good investment experience no matter how volatile the marketplace becomes. Ultimately, Investing Comes Down to You Many of us are familiar with the adage that you should subtract your age from 100, put the remaining percentage into stocks, and the rest should go into bonds. However, with life expectancy increasing, this axiom might not be relevant anymore. Likewise, many of us have probably been instructed to participate in an investor questionnaire to determine the formula that works best for us. These quizzes don’t always reflect us, though, and sometimes we might even cheat our way through them by catering answers to achieve the results we want. Ultimately, investors should ask these three questions when investing: Does that fit my goals? My time horizon? My risk tolerance? The portfolio that reflects the investor best is the one that will serve the investor best. Investment is a lot like finding a true love: You have to think about how much uncertainty — what degree of risk — you are willing to put up with. It is important to remember when investing, investors should stick to their investment plan and not make decisions influenced by everyone around them; they should be patient with their investments; and they should choose a portfolio that reflects them. acts business in states where it is properly registered, or excluded or exempted from registration requirements. It does not provide tax, legal, or accounting advice. The information contained in this presentation does not take into account your particular investment objectives, financial situation, or needs, and you should, in considering this material, discuss your individual circumstances with professionals in those areas before making any decisions.

The content of this publication reflects the views of McLean Asset Management Corporation (MAMC) and sources deemed by MAMC to be reliable. MAMC is a SEC registered investment adviser. There are many different interpretations of investment statistics and many different ideas about how to best use them. Past performance is not indicative of future performance.
The information provided is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. There are no warranties, expressed or implied, as to accuracy, completeness, or results obtained from any information on this presentation. The information throughout this presentation is obtained from sources which we, and our suppliers, believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission there of to the user. MAMC only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. It does not provide tax, legal, or accounting advice.

The information contained in this presentation does not take into account your particular investment objectives, financial situation, or needs, and you should, in considering this material, discuss your individual circumstances with professionals in those areas before making any decisions.

 

McLean Asset Management Corporation (MAMC) is a SEC registered investment adviser. The content of this publication reflects the views of McLean Asset Management Corporation (MAMC) and sources deemed by MAMC to be reliable. There are many different interpretations of investment statistics and many different ideas about how to best use them. Past performance is not indicative of future performance. The information provided is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. There are no warranties, expressed or implied, as to accuracy, completeness, or results obtained from any information on this presentation. Indexes are not available for direct investment. All investments involve risk.

The information throughout this presentation, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission there of to the user. MAMC only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. It does not provide tax, legal, or accounting advice. The information contained in this presentation does not take into account your particular investment objectives, financial situation, or needs, and you should, in considering this material, discuss your individual circumstances with professionals in those areas before making any decisions.