We love working with you, the best clients in the world, because you’ve accomplished what some find impossible. You have recognized that long-term investors get paid to endure volatility. Some of you came to us this way. Others have learned across our many interactions. A few of you are still learning.
Up to this point, we have mostly defined risk by what it isn’t, as in “volatility is not the same as risk.” It might be useful to be more explicit about what types of risk we do consider.
Recall that our risk assessment takes place with a long time horizon in mind. We believe that you should have the money you’ll require for the next 3–5 years invested outside of the market. (Short-term volatility is a risk during the short term.)
If you’re parking your money with us for a longer time horizon (3+ years), here are some risks we do factor into our strategy:
- Inflation risk. Over time, what’s the likelihood this investment will outpace inflation? Put another way, what’s the risk of losing purchasing power over time?
- Investment risk. Over time, what’s the likelihood this investment will substantially change for the worse or the players will go out of business?
- Concentration risk. Too many eggs in one basket could spell trouble if the basket upsets.
How much risk a portfolio might endure depends a number of factors—your investing time horizon being just about the biggest one. And of course, there are other types of risk in the mix, but the topic is important enough to offer you more information from time to time.
Clients, if you want to talk about your risk exposure, email or call.
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