Risk: The Investor’s Nemesis

Although reward without risk might be rare, risk with no reward is unfortunately all too common.

Weighing risk against reward

Every investor knows that even the safest and “surest” investment carries some degree of risk that is impossible to avoid completely. Any investment manager suggesting otherwise is being dishonest. The correlation between reward and risk is strong but fluid; as a rule, choosing an investment generating a high return will often involve assuming a higher degree of risk.

Managing risk

Irvine Humphries Global’s approach to mitigating investment risk is holistic. While acknowledging that risk cannot be eliminated altogether, we strive to reduce potential losses by applying well-known strategies, both active and passive. Asset allocation, the technique of diversifying a portfolio’s asset mix among different markets, different industries within a market or several competitors in a particular market segment, can greatly reduce the negative financial impact of a substantial loss in the value of any one security.

For example, a portfolio that is heavily invested in stocks can be protected against market drops by including bonds or commodities, as these markets tend not to move up or down in parallel with stocks and, in fact, often move in the opposite direction.

Evaluating your risk tolerance

Irvine Humphries Global understands that every investor is different, particularly in regard to the subject of risk tolerance. What one investor might consider a good investment with an acceptable amount of risk, another may see as dangerously risky. This is not merely about personality differences; a young person in the early stages of a career can afford to take more risks and potentially suffer a few short-term losses in the pursuit of long-term growth. Conversely, a retiree will seek safer investments that offer a lower chance of losing value. We listen carefully to our clients’ position on acceptable risk and adjust our investment advice accordingly.

The reward-risk compromise

Irvine Humphries Global is aware that a compromise between desired reward and acceptable risk is inevitable in reaching one’s financial goals. We seek a middle ground where these opposing goals are properly balanced, where a client’s portfolio shows acceptable growth while keeping risk to a level they can tolerate.