The tortoise and the hare all over again

Compare 2 investment strategies over 5 years:

• Bob (the hare) invests $100,000 and takes more risk to get a higher return; he gets a 12% return for 4 years but loses 12% one year, and ends up with $138,469.

• Sally (the tortoise) invests $100,000 and takes less risk to get a moderate return, but has less chance of losing money; she gets an 8% return every year for 5 years, and ends up with $146,933.

Bob would have felt a lot better than Sally for 4 years.

It would, in fact, take a lot of willpower for Sally to stick with her investment strategy, but if she did, she would have a 22% better return then Bob!

Losing money can be devastating to your investment returns.

Things that risk averse investors keep in mind:

• The future is unpredictable.
• You must protect against unpredictable adversity.
• In the short run anything can happen. In the very long run, everything will happen.
• While loss avoidance is not an investment strategy, it must be a foundational investment principle.
• Setting an investment goal or specific rate of return is, unfortunately, not achievable. Unlike working for an hourly wage where you can work harder or longer to increase your returns, it is all but impossible to work smarter to increase your investment returns.
• The price you pay determines your risk : return ratio. Those that buy in when there is optimism pay a very high price, and even a small miscalculation can cause a loss.

Contact Visible Investment Advisors to see if your investment portfolio is adequately protected from loss.