Rational Advisor

That word Risk is used to loosely when it comes to investments, apparently everything is a “risk”!

To me, risk is really trying to understand uncertainty of return. And uncertainty cannot be completed eliminated. You don’t avoid it; you accept it – in measure. This is where diversification and all that good stuff come in.

As you increase the uncertainty, you widen the range of possible outcomes. And while widening the range of outcomes allows for greater probability of preferred outcomes, it also increases the likelihood of outcomes that aren’t so hot. And that’s why they call it “risk”

Stocks can have significant capital risk and can be very volatile, but they are resilient to inflation.

Bonds can have very low capital risk and have much lower volatility, but they hate inflation.

Cash has insignificant capital risk or volatility, but inflation is a certain danger.

All three represent different flavors of investment, but they taste great together.

So how much risk should you take on in your investment portfolio? The answer must be the smallest amount necessary to generate the return required to fulfill your financial objectives. But understand you cannot avoid “risk”

Thanks

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