We have been discussing the asset allocation decision, which in its simplest form consists of how much of your investments you should expose to the higher risks and potentially higher rewards of the stock market, and how much you should keep in safer investment such as bonds and cash. First, we established that this decision…
Now that you have determined how much risk you need to take, and how much risk is wise for you to take, the final step is determining how much risk you are willing to take. Some people are naturally adventurous. They seek out and thrive on risk. Others are naturally more cautious, avoiding risk when…
The second question you must answer according to Larry Swedroe’s investment risk framework, is, “How much risk is wise for me to take?” It could be that you need to take risk to reach your financial goals, but taking risk would not be wise. This would put you in the unfortunate position of not being able to…
Have you ever used a common term or phrase without thinking about what the words mean? Do the words we use to describe things matter? Can the words we use to describe things affect our attitudes about them, and even our actions? I have been thinking a lot about these questions since coming across the…
You should also consider your need to take risk. Have you already saved enough? If so, why continue taking risk? Far too many investors fail to understand that the strategy to get rich (take risks) is entirely different from the strategy to stay rich (minimize risks, diversify the risks you take, and don’t spend too…
The fundamental law of investing is that there is no reward without risk. The corollary to this law is that your most important investment decision is how much risk to take. Definition of Asset Allocation How you divide your assets between safe and risky investments is known in investment literature as Asset Allocation. Popular investment…
