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Know
Risk, Know Return
Q.
How can an investor manage risks to the
get the returns required for retirement?
A.
By making the right investment
decisions.
The
investment decisions that
are important to your reaching critical
mass in advance of your retirement are:
-
How
to distribute your money among
investment options?
-
Which
investment options are right for
you?
-
When
should you add, reduce, or
rebalance?
Decision
making
Most
investment decisions are rooted in what
is known, but it is the unknown that
causes risk.
-
Do
you have all of the available
information?
-
Are
you able to understand and process
the information you have?
-
Can
you act without
bias, emotion, and fear?
The
following table is meant to be 'enlightening,'
not comprehensive.
-
the
highlighted green
items help you make the right
decisions,
-
the
highlighted yellow
items are used in decision making,
but
their value questionable,
-
the
highlighted red
items are typically not used and/or
may be harmful to the decision
making process
You
only use 10% of your investing
brain to make investment decisions.
Known
to You |
Known to Others
|
Unknown |
Unknowable |
-
Current
'market' prices
-
Some
personal needs
|
-
Past
prices, earnings, financials
-
Personal
behavior in reaction to
external events
|
-
Public
opinions and behaviors
|
-
Each
individual has their own circle of
competence that can be marginally
increased with 'broker' or other paid
opinions.
|
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-
In
addition to what is known to you, the
above are known to other 'professionals'
or 'insiders' with a larger circle of competence.
|
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What's
been 'discounted' (already built into
pricing)
-
Capabilities,
agendas, biases, and motivations of
gurus, analysts, and advisors
-
Investor
behavior
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Technological
breakthroughs
-
Short
and long term results
|
-
Disclaimers
about using history to predict future
returns and forecasts are mandatory,
but often dismissed.
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Only
a Registered Investment Advisor has a
fiduciary responsibility to their client.
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Your
tolerance under extreme pressures
-
Geo
political events
-
Acts
of nature
-
Times
of exuberance, hysteria,
catastrophe, and opportunity
-
Your
health condition and life expectancy
|
-
Depending
on your level of spirituality, the
future is unknowable.
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If
you've lost money in the stock or bond market,
and have told yourself "you'll
never invest again," think again —
you've probably not invested at all, you've
likely speculated on the price going up.
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