Long-Term Investing

Risk vs. Reward Relationship

Higher potential rewards are coupled with higher risks – always, no exceptions.

Notice that language. Rewards are potential. Risks are real.

Here’s the famous risk/reward graph from “Four Pillars of Investing”

These guys recommend:

A global equity portfolio ideally (?!) consists of the following allocation:

  • 12.5% US Large
  • 12.5% US Large value
  • 12.5% US small
  • 12.5% US small value
  • 10% Int’l large
  • 10% Int’l large value
  • 10% Int’l small
  • 10% Int’l small value
  • 10% emerging markets

I think some of these segments are now influenced by the same forces and don’t offer as much protection as previously. Markets now move much more in sync than before.

This is something to keep in mind for when I “grow up” and decide to become a conservative investor instead of a crazy juniors speculator.