A relationship exists between investment risk and expected return.
The safer the asset, the lower the expected return. The greater the investment risk, the higher the required return. Or it can be a tad more technical if you like.
Investors should take an objective view of investment risk. Unfortunately, investors tend to be emotional creatures and these volatile times lead people to become fearful of investment risk.
So what is happening? And what should you do as an investor? (more…)
Investing based on emotions or instincts is a difficult issue.
So challenging that an entire field, Behavioural Finance, examines how investor psychology and emotions affect investment decisions.
Recently I read an article where the author believes that financial planners prefer clients with little investment knowledge. That way, it is easier to sell them whatever you want.
Yes, there are financial planners, brokers, etc., that operate this way. But in my experience, good financial planners would rather deal with well-educated investors.
And often the reason relates directly to emotional investing. (more…)
Investment markets have resembled roller coasters in recent times.
Up, down, sideways, making many investors sick to their stomaches.
While investing is an emotional experience at any time, this turbulent period makes things even worse for lots of investors.
So what should you do? (more…)
We shall start our look at the different asset classes this week.
I do not intend to go too deeply into many of the assets themselves. There are plenty of good definitions on the internet or in textbooks.
Rather, I want to look at the asset classes from an investing perspective.
How liquid are the assets? What are their risk and return profiles? What other factors impact their performance? How should you consider their suitability in your investment portfolio?
Today we will review Cash and Cash Equivalents (CCE). (more…)
Today we shall look at a few more areas of interest relating to diversification.
In An Introduction to Diversification, we saw that Investopedia recommends holding a “wide variety of investments” to benefit from diversification.
Further, that a diversified portfolio will generate “higher returns and pose a lower risk than any individual investment found within the portfolio”?
Is this true? What does it mean? (more…)
In An Introduction to Diversification, we began our review of the subject.
Knowing something about asset correlations is crucial to better understanding why diversification is important in an investment portfolio.
So that shall be today’s topic. (more…)
The key risk management tool for the average investor is portfolio diversification.
It seems like an easy concept, but it is a little more complex than it first appears. (more…)
Becoming an effective investor requires you to properly manage investment risk.
Today we shall look at how this is typically done. (more…)
When making investment decisions, one should always perform both quantitative and qualitative analysis.
By investment decisions, I include financial instruments such as stocks and bonds. But it also refers to any decisions you make when operating a business. (more…)
While standard deviations are indeed useful, be aware that there are limitations to their use.
Here are a few things you should consider before using standard deviations as a risk measure. (more…)
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