Many investors tell me they want the highest returns for the least risk. However, savvy investors know that to be a myth.
A periodic reassessment of the facts is time well spent for every investor. One where plenty of frankness prevails.
For example, step back and revisit your investor style. Rethink if it truly fits the financial goals you seek.
My question heads to the point: “What drives your investing style: Preserve or Perform?” Let’s define these two types:
Preserve investors care first about the risks they incur. They lean more toward capital conservation manoeuvres.
Perform investors seek high returns with far less or no concern for risks. They prefer more exciting aggressive strategies.
My observation is that the majority of investors are clearly driven and sold by performance. Their exuberance too often chases fleeting past performance, a mugs game at best.
Wise investors know that some portfolio preservation is desirable strategy. However, potential performance simply has far more cachet and always will.
Every family needs to find their acceptable investing balance. That is, between becoming too conservative and throwing caution to the wind.
At the end of the day, it’s the risks you take that deliver your returns. It’s always prudent to set or rethink your profile vis-a-vis your goals.
Establishing your true investor profile is both an art and a science. Personal risk tolerances and time horizon are two major influences.
Long-term investor profiles are a state of mind based on personal needs and comfort. Here is my overview of six profiles representative in managing today’s portfolios:
|Investor Profile||Sample Asset Mix Targets||Typical Age Group||Potential Return/Year|
|Stocks||Bonds & Cash|
|Preservation||20%||80%||70 plus||Up to 4%|
|Income||40%||60%||60 plus||4% to 6%|
|Balanced||50%||50%||40 to 80||5% to 7%|
|Growth||60%||40%||30 to 70||6% to 9%|
|Aggressive||80%||20%||Up to 50||10% to 15%|
|Speculative||100%||0%||Up to 40||15% plus|
Always understand and take control of your investment risks. Your answer to my question dramatically affects the way you invest.
Adopting a prudent risk management profile is your priority one. It helps create a smoother path toward your financial destination.