Investing, economics, finance and random thoughts.
How Long to Recover from Losses?
Risk and reward go hand in hand. The more reward you expect, the more risk you are taking. This has always been true and always will be true.
But with risk comes the possibility of losses and avoiding large losses in a portfolio can be just as important as reaching for big gains. The way the math works, large losses do a disproportionate amount of damage to a portfolio (e.g. a 50% loss means you need to earn 100% just to get back where you started).
If you are curious about what kind of returns you need to recover from a serious portfolio loss I recommend you consult this handy table:
This is just some food for thought about consequences of investing risk. Understanding risk is a critical component to developing an investment strategy you can stick with when markets aren’t going your way.
| Print article | This entry was posted by craigr on December 31, 2008 at 12:00 am, and is filed under Investing. Follow any responses to this post through RSS 2.0. Both comments and pings are currently closed. |
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Gold “Bubble”
about 1 month ago - Comments Off
Much discussion in the news about Gold’s new price high (about $1300). The word “bubble” is getting tossed around a lot. There are a flood of articles (and advertisements) about buying gold and an equal flood about selling gold. What to do?
Safe. Stable. Simple.
about 4 months ago - 2 comments
Safe. Stable. Simple. These are the words Harry Browne used to describe his investment philosophy in his October 10, 2004 radio show. He pretty much nails it.
Why these assets?
about 5 months ago - 4 comments
I’m often asked questions about substituting some asset X for one of the other assets in the Permanent Portfolio. I think this is a bad idea because you could introduce a potentially weaker investment for one of the time-tested assets the portfolio holds. Now, as a recap we know that the Permanent Portfolio holds four core
Book Review – Books on Risk (and two podcasts)
about 6 months ago - 2 comments
A particular theme you’ll hear on this blog about investing is the idea that the markets are not predictable. You may believe that I’m referring to the idea that you can’t predict returns on investments ahead of time. That’s partially true. The other part though relates to extreme risks that sweep through the markets in unpredictable ways with unpredictable results.
Aside from standard market risks, when you look at your investments it’s also important to always ask yourself: “What if I’m wrong?” Because, odds are, you will be wrong eventually. It’s just a question of degrees on how wrong it will be: A little or a lot.
Which Asset Will Do Best?
about 6 months ago - 6 comments
I get asked from time to time about what asset class in the Permanent Portfolio is going to do best. Usually this is in the context of someone wanting to start investing in the Permanent Portfolio but they don’t want to buy the stocks or the bonds or the cash or the gold because they feel one or all of them are too expensive. Or they’ve read some articles and research about how one asset or another is just poised to fall at any moment and another is going to go up wildly in price. Well, my advice is always the same: Just do the four way split and don’t try to guess the markets.
Stock and Bond Only Portfolios: A Flawed Approach
about 7 months ago - 5 comments
To me, the idea of a portfolio that only holds stocks and bonds is flawed. It has too much risk of loss and too much risk of hitting a pocket of dead air where it effectively doesn’t grow for many years. If I see something is a flawed design I want to fix or get rid of it. I don’t keep using a flawed design hoping that it doesn’t break again when experience has shown, clearly, that it will with the same bad results.
Direct Bond Ownership vs. Bond Funds
about 7 months ago - 6 comments
A reader asked about why it’s recommended investors own their Long Term Treasury Bonds directly for the Permanent Portfolio allocation vs. using a mutual fund.
In two words: Manager Risk
Too much gold hype…
about 8 months ago - 2 comments
People are wondering about the gold price. Is it going to go higher? Is it going to go lower? Etc. Well the unexciting answer is nobody knows. That’s right, nobody at all knows. I don’t care how pretty their charts are or what logical arguments they have for or against. What I do know is that too many people are talking about the stuff.
Porn and the Permanent Portfolio
about 9 months ago - 4 comments
You can learn things from the most unlikely sources in life. When people ask me what it was that got me to start following the Permanent Portfolio I respond with one word: Porn.
Black Monday Anniversary
about 9 months ago - Comments Off
A poster on the Diehards forum remarks that today is the 80th Anniversary of Black Monday 1929 – The Great Stock Crash that touched off the Great Depression. In this very interesting video you can hear first hand accounts of the events that led up to the crash:
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