Risk & Return are Related
Monday 14 May 2007
Each investment carries some degree of risk, with some investments carrying more risk than others. While it is certainly possible to outperform markets over the long-term by taking on additional risk, it is important to differentiate between those risks that are worth taking and those that are not.
All investors should be able to achieve a ‘risk free’ rate of return. This is simply the rate of return which can be achieved by investing capital in cash (e.g. in your bank account). Where capital is invested in asset classes other than those that deliver the ‘risk free’ rate of return (e.g. property and equities), it is sensible that investors expect a higher return as compensation for the additional risks involved. That is, risk and return are related. And while this may be the case, many risk factors involved in targeting a higher rate of portfolio return can be managed, to actually help aid the performance of a portfolio as a whole.
One risk management tool we stress to clients is to avoid the temptation of making short-term predictions in an attempt to ‘beat’ the market. It is far less risky, and more prudent, to develop a long-term investment strategy and remain disciplined enough to adhere to this strategy over all types of market cycles. This ensures that you maximise your chances of reaching your long-term financial goals and objectives.
Categories: Asset Class Management, Risk
posted by Murray Round Wealth Management @ 19:25,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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