I’m Keith DeGreen and this is your Investors Minute.
Most folks don’t grasp the asymmetry of gain and loss, perhaps because they tend to feel loss much more acutely than gain.
A short-term investment loss is much more likely to change an investor’s behavior than a short term gain. Often, that behavior – such as going to cash indefinitely – compounds the problem.
In a recent blog, CFA David Merkel reminds us that risk and return are not inseparable, and are more weakly related than most people think.
As David recommends, risk is best faced in prospect, and not retrospect: ask yourself if the current assets you hold offer fair compensation for the risks they and they alone present.
One way to mitigate risk is through diversification. The increasingly-popular universe of inexpensive exchange-traded funds allow us to diversify our risk along the way.
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