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Risk and reward are woven through many decisions we make on a daily basis. If you are running late to a business meeting are you willing to speed to get there on time? The risk is increasing your speed which increases the risk of an accident, but the reward is arriving on time. Risk and reward are similarly approached in the investment world, there are different investments that habitually have different risk profiles. Depending on personal circumstances, short and long-term goals, and other factors the risk of your portfolio should be suitable.
Risk is defined on Investopedia.com as the chance that an outcome or investment’s actual gains will differ from an expected outcome or return. This highlights the inherent risk of investing and the type of return an individual can hope to expect. Individual companies and stocks will have their own risk attached. This risk will be in the type of industry they are in, how well the management team can navigate different economic scenarios, as well as outside risks such as geopolitical issues. A portfolio should be built with risk metrics that match the individual or family. Depending on the financial goals and willingness and ability to take risk the portfolio should match. Willingness to take risk is very individualized and comes down to your personal ideology on how much you can handle the roller coaster of the portfolio. Your ability to take risk will be more based on your financial goals - if you are looking to save for a down payment in the coming 3 years the portfolio should be at a lower risk profile. You do not want to find your dream house with the markets off 20% and pull your money. On the other side of that equation, investing for retirement can be at a higher risk with decades to benefit from the ups and downs of the markets.
Traditional finance highlights that the higher risk taken within a portfolio the higher the long-term returns should be. Building a diversified portfolio to mitigate risk where possible should be a high priority for most investors.
If you would like to discuss further, please feel free to connect with me or one of our other portfolio managers.
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Tom Stachiw, CIM
Portfolio Manager
Local: +1-403-718-7792
MATCO FINANCIAL INC.
Founded in 2006 to manage and service seven family offices, today Matco offers the benefits of our extensive investment management experience to individual investors, foundations, endowments, condominium corporations, trusts, corporations and not-for-profit organizations.
Our mission is to simplify the investment world for our clients by understanding their needs and providing exceptional investment solutions that preserve and grow capital.