 | |  | |  | |  | |  | |  | |  | |  |
| 9 Lowell Street, Beverly, Massachusetts, 0915-3652 - Phone 978.922.9961 - Fax 978.922-9961 Conflict Free Financial Planning, Investment Counseling & Financial Education |
 |
| Complimentary Offer |
| | | | | | | | | | | | | | |
 |
| 9 Lowell Street, Beverly, Massachusetts, 01915-3652 - Phone 978.922.9961 - Fax 978.922.9961 Conflict Free Financial Planning, Investment Counseling & Financial Education Adam Smith David Ricardo |
| Copyright © 2009 Thomas J. Costantini, Monserrat Advisory Services, LLC, All Rights Reserved. |
Managing Investment Risk
When most people think of risk within the context of investing they think of losing money and rightly so. However there are other risks that
investors should keep in mind when choosing investments for their portfolio.
Over the long term the greatest risk faced by investors is that their money will lose value due to the effects of inflation. From 1926-2008
inflation averaged 2.9%. At the end of 2008 an investor would need $10.73 to buy the same amount of goods and services that $1 would
have purchased in 1926. Long term investors whose after tax return is less than the rate of inflation have seen their money lose value
even though they may not have actually lost money.
The greatest risk faced by short term investors is volatility. Over the long term the stock market has generated an average annual return of
approximately 10% while long term government bonds have returned between 5% and 6% and short term Treasury Bills have returned
about 3%. If returns were linear (increasing at a constant rate from year to year) choosing investments would be simple. We would invest in
stocks and earn the higher returns. Unfortunately these are average returns. The returns for individual years fluctuate above and below
these averages. Stocks are the most volatile of these investments generating very high returns one year and steep loses in other years.
Bonds are much less volatile while T-Bills are relatively stable. Investors who require higher returns than those of bonds or bills must
expose a portion of their portfolio to stocks or risk not earning the return they require to reach their goals.
Long term investors who seek higher returns by investing a portion of their portfolio in stocks face the risk that bonds might generate
higher returns than stocks.
Investors also face the risk that the returns of the investments they choose (mutual funds or individual stocks and bonds) fail to match the
returns of the stock and bond markets.
Managing Investment Risk discusses these risks and helps investors build diversified portfolios based on the return they require to
reach their goals, their holding period and their feeling about risk. Complete the required fields below and we would be happy to send you
a copy.