Saturday, August 11, 2012

Risk Reward

This is a risk and reward curve courtesy of E.J. Smith and Young Research and Publishing. What this means is that a portfolio of 100% stocks will lose about 20% of its value once every 20 years or so. That would have been more like 40% in 2008. Remember, if you lose 40% one year it will take a 66.67% increase to get even. That would be a little less than 5 consecutive years of 12% return. I remember once we had two 20 year storms in a single year.

Something to think about.

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