{"id":9940,"date":"2015-08-14T05:55:26","date_gmt":"2015-08-14T12:55:26","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=9940"},"modified":"2016-12-21T07:27:43","modified_gmt":"2016-12-21T15:27:43","slug":"investment-long-term-with-less-risk","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/investment-long-term-with-less-risk\/","title":{"rendered":"Investment Long Term With Less Risk"},"content":{"rendered":"

One of the most interesting words in the investing business is \u201crisk.\u201d It connotes danger, but also opportunity. And we misunderstand it at nearly every turn when saving for retirement.<\/span><\/p>\n

Consider this old riddle from your elementary school science teacher. What weighs more, a pound of feathers or a pound of lead?<\/span><\/p>\n

The unthinking student blurts out \u201clead!\u201d while the more cautious kids stop to think. It has to be trick question, right? So they don\u2019t answer at all.<\/span><\/p>\n

Of course, a pound of feathers and a pound of lead weigh the same \u2014\u00a0one pound. That\u2019s the joke.<\/span><\/p>\n

We can extrapolate this to the investing world and find many active investors falling for the same tricky riddle regarding risk. Which is the riskier investment<\/a>, $1,000 in the stock market or $1,000 in the bond market?<\/span><\/p>\n

\"risk\"<\/p>\n

Both carry risk, and that risk can be equal easily enough. The answer you need requires more information.<\/span><\/p>\n

Are you a long-term investor? Or a speculator trying to trade your way to riches?<\/span><\/p>\n

Are you in need of cash today, tomorrow or next month? Can you reinvest dividends<\/a>\u00a0and\u00a0interest payments?<\/span><\/p>\n

Do you let your emotions take over when investments don\u2019t perform to expectations? Do you ignore your investments until the news is truly, unbearably bad, then take action?<\/span><\/p>\n

Can you sell an investment in a timely fashion and reinvest the cash in other investments that have declined in value? Can you in fact sell high and buy low, over and over, in a disciplined way?<\/span><\/p>\n

All of these factors will drive the outcomes of a stock or a bond investment. A stock investment that is reinvested after it pays its dividend can, over the long-term, easily outpace bonds.<\/span><\/p>\n

But that investment is likely to rise and fall in market value over the intervening years<\/a>. It takes guts to buy more when it falls in value, and to sell off a portion when it is higher than its long-term average.<\/span><\/p>\n

Bonds will be less volatile, but they are not risk-free. Interest rates have been rising steadily for decades, driving up bond prices. It has been remarkably easy to be a long-term bond holder.<\/span><\/p>\n

Attachment risk<\/h2>\n

That could change. A sharp change in the interest rate will make it harder to justify holding a long bond that pays less, perhaps even less than inflation. If enough people abandon that particular bond, its value will\u00a0drop.<\/span><\/p>\n

A portfolio approach allows retirement investors to own stocks, bonds, real estate and foreign equities and debt<\/a>. Rebalancing forces the discipline of selling high and buying low.<\/span><\/p>\n

It also depersonalizes the process, allowing you to feel less personally attached to any given position. Diversification not only reduces single-company risk, it reduces \u201cattachment risk\u201d that comes from owning a small number of companies for many years.<\/span><\/p>\n

Most importantly, a diversified portfolio allows the long-term retirement investor to get the best possible result with the least amount of risk and stress<\/a> \u2014 no riddles required.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

One of the most interesting words in the investing business is \u201crisk.\u201d It connotes danger, but also opportunity. And we misunderstand it at nearly every turn when saving for retirement. … Read more →<\/span><\/a><\/p>\n","protected":false},"author":8,"featured_media":9945,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_wp_rev_ctl_limit":""},"categories":[3],"tags":[],"yoast_head":"\nInvestment Long Term With Less Risk | MarketRiders<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.marketriders.com\/investing\/investment-long-term-with-less-risk\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Investment Long Term With Less Risk | MarketRiders\" \/>\n<meta name=\"twitter:description\" content=\"One of the most interesting words in the investing business is \u201crisk.\u201d It connotes danger, but also opportunity. 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