Take
the "ability-to-sleep-at-night" test
Author:
Ivon T. Hughes
If
your investment's returns have been going up and down like a roller coaster
ride and keeping you up at night, then understanding a fundamental investment
principle called Risk/Return Trade-off may help you.
The
concept is also known as the "ability-to-sleep-at-night test".
A
common misconception is that higher risk equals greater return. The Risk/Return
Trade-off tells us that higher risk gives us the possibility of higher returns.
Remember, there are no guarantees.
You should find a balance between your desire for higher returns and your
willingness to accept the higher levels of uncertainty (risk).
What
is Risk? Many investors view investment risk as the possibility of losing
part of your capital. Think of risk as the potential for a negative return
on an investment -- the higher the probability of a negative return, the
greater the risk. Additionally, the greater the range of possible returns
associated with an investment, the higher the risk. Therefore, risk refers
to the variability or volatility of an investment's return. If an investment's
value fluctuates only slightly from year to year, the investment has relatively
low risk, while wider value fluctuations reflect a relatively high risk.
We
want to help you reduce the risk you have in your portfolio while maintaining
or improving your return potential. Contact us for further clarification
or go to our website to learn more about your personal risk tolerance.
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Ivon T. Hughes, The Hughes Trustco Group Ltd.
Online Insurance Broker - Get a FREE Quote TODAY!
Tel: (514) 842-9001 Email: info@trustco.ca
Web: http://www.trustco.ca
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