The average long-term experience in investing is never surprising, but the short term experience is always surprising. We now know to focus not on rate of return , but on the informed management of risk . Make Big Money Mistakes. The buy and sell points have to do with an investors aversion to risk. The resulting loss for the investor has to do with the entwined relationship between risk and return.
High returns require high risk.
The roller coaster of risk and return in Chart 2 reinforce the relationship of risk and return. Here is a look at the volatility of our 5 base portfolios over 28 years. There is a clear pattern of less volatility as the portfolios include less risky assets, such as fixed income. Roller Coaster of Risk and Return Y ou can view another very interesting representation of risk and time using a distribution chart to illustrate the probability of losses and gains of 20 portfolios, or any combination of expected return and standard deviation. This measure of volatility puts a number to the swings in returns on the Roller Coaster above.